Tax Type
Employer Income Tax Withholding
Description
Failure to Withhold, Statute of Limitations
Topic
Withholding of Tax
Date Issued
08-11-1999
August 11, 1999
Re: Sec. 58.1-1821 Application: Withholding Tax
Dear ****
This will reply to your letter in which you protest the assessment of withholding tax, penalty and interest against ***** (the "Taxpayer') for the July 1989 through September 1994 taxable period. I apologize for the delay in response.
FACTS
The Taxpayer operates an employment agency where she places nurses with individuals who need nursing care. For the periods July 1989 through September of 1994, the Taxpayer was assessed tax, penalty, and interest for failure to withhold taxes from certain individuals whom the Taxpayer classified as independent contractors.
You contend that the assessments are incorrect because the individuals who work for it are properly classified as independent contractors.
DETERMINATION
Code of Virginia Sec. 58.1-460 defines "employee' as, "[A]n individual, whether a resident or a nonresident of the Commonwealth, who performs or performed any service in the Commonwealth for wages ....' The Code of Virginia does not define "independent contractor' for withholding tax purposes. Nevertheless, federal law provides certain factors to distinguish between an employee and an independent contractor.
Treasury Regulation Sec.31.3121(d)-1 provides these factors, and is summarized in Internal Revenue Service Publication 937. The 20 factors enumerated in this publication are used as a guideline for determining whether a worker is an employee or an independent contractor. These items, however, are not the only elements considered when determining the classification of workers.
The department requested you to provide information to substantiate the Taxpayer's treatment of the nurses as independent contractors by its letters of March 10, July 15, and October 2, 1998. In addition, the department has given the Taxpayer several time extensions to provide this information. The Taxpayer has not been able to provide the requested evidence. Therefore, because no clear and cogent evidence has been provided that would indicate that these individuals acted in the capacity of independent contractors, the individuals performing the services for or on behalf of the Taxpayer are deemed to have an employee/employer relationship with the Taxpayer.
The term "employer' is defined by Code of Virginia Sec. 58.1-460 as "[T]he person ... for whom an individual performs or performed any service as an employee ....' Code of Virginia Sec. 58.1-461 provides that employers must withhold taxes on wages of employees. Accordingly, the individuals performing the services for or on behalf of the Taxpayer have an employee/employer relationship and must have taxes withheld from their wages for each payroll period. In this case, the withholding taxes were assessed when it could not be determined if the individuals in question included their payments when they filed their individual income taxes.
Code of Virginia Sec. 58.1-104 provides that withholding tax must be assessed within three years from the last day that the returns are due or within six years from the last day that the returns are due if no returns were filed or the returns were fraudulently filed. In the instant case, the Taxpayer filed withholding tax returns for the years in question. There is not enough evidence to demonstrate that the Taxpayer filed false withholding reports with the intent to evade the payment of tax. Therefore, the assessments for the periods of July 1989 through December 1992 were made outside the statute of limitations, and have been abated.
Accordingly, the department finds no basis to treat the individuals in question as independent contractors. Please remit your payment of tax, penalty and interest according to the enclosed schedule to ***** Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions about this determination, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12704B
Re: Sec. 58.1-1821 Application: Withholding Tax
Dear ****
This will reply to your letter in which you protest the assessment of withholding tax, penalty and interest against ***** (the "Taxpayer') for the July 1989 through September 1994 taxable period. I apologize for the delay in response.
FACTS
The Taxpayer operates an employment agency where she places nurses with individuals who need nursing care. For the periods July 1989 through September of 1994, the Taxpayer was assessed tax, penalty, and interest for failure to withhold taxes from certain individuals whom the Taxpayer classified as independent contractors.
You contend that the assessments are incorrect because the individuals who work for it are properly classified as independent contractors.
DETERMINATION
Code of Virginia Sec. 58.1-460 defines "employee' as, "[A]n individual, whether a resident or a nonresident of the Commonwealth, who performs or performed any service in the Commonwealth for wages ....' The Code of Virginia does not define "independent contractor' for withholding tax purposes. Nevertheless, federal law provides certain factors to distinguish between an employee and an independent contractor.
Treasury Regulation Sec.31.3121(d)-1 provides these factors, and is summarized in Internal Revenue Service Publication 937. The 20 factors enumerated in this publication are used as a guideline for determining whether a worker is an employee or an independent contractor. These items, however, are not the only elements considered when determining the classification of workers.
The department requested you to provide information to substantiate the Taxpayer's treatment of the nurses as independent contractors by its letters of March 10, July 15, and October 2, 1998. In addition, the department has given the Taxpayer several time extensions to provide this information. The Taxpayer has not been able to provide the requested evidence. Therefore, because no clear and cogent evidence has been provided that would indicate that these individuals acted in the capacity of independent contractors, the individuals performing the services for or on behalf of the Taxpayer are deemed to have an employee/employer relationship with the Taxpayer.
The term "employer' is defined by Code of Virginia Sec. 58.1-460 as "[T]he person ... for whom an individual performs or performed any service as an employee ....' Code of Virginia Sec. 58.1-461 provides that employers must withhold taxes on wages of employees. Accordingly, the individuals performing the services for or on behalf of the Taxpayer have an employee/employer relationship and must have taxes withheld from their wages for each payroll period. In this case, the withholding taxes were assessed when it could not be determined if the individuals in question included their payments when they filed their individual income taxes.
Code of Virginia Sec. 58.1-104 provides that withholding tax must be assessed within three years from the last day that the returns are due or within six years from the last day that the returns are due if no returns were filed or the returns were fraudulently filed. In the instant case, the Taxpayer filed withholding tax returns for the years in question. There is not enough evidence to demonstrate that the Taxpayer filed false withholding reports with the intent to evade the payment of tax. Therefore, the assessments for the periods of July 1989 through December 1992 were made outside the statute of limitations, and have been abated.
Accordingly, the department finds no basis to treat the individuals in question as independent contractors. Please remit your payment of tax, penalty and interest according to the enclosed schedule to ***** Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions about this determination, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12704B
Rulings of the Tax Commissioner