Tax Type
Individual Income Tax
Description
Taxpayer subject to Virginia income tax/ Failure to file income tax
Topic
Federal Conformity
Persons Subject to Tax
Records/Returns/Payments
Date Issued
07-19-2013
July 19, 2013
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessments issued to ***** (the "Taxpayer") for the taxable years ended December 31, 2008, and December 31, 2009.
FACTS
The Department received information from the Internal Revenue Service indicating that the Taxpayer may have been required to file Virginia individual income tax returns for the 2008 and 2009 taxable years. In each case, the Department requested information to verify whether the Taxpayer was subject to Virginia income tax. When a response was not received with respect to the 2008 taxable year, the Department issued an assessment for that year based on available information. Subsequent to that assessment, the Taxpayer responded, claiming he was not subject to Virginia income tax. When the Department was not satisfied with the Taxpayer's explanation, an assessment was issued for the 2009 taxable year as well.
The Taxpayer has filed an appeal, claiming he is not subject to Virginia income tax for several reasons, including that he had no federal adjusted gross income during the taxable years in question and that he had no "State" income because he did not live in the "State of Virginia. The Taxpayer also argues that Virginia must prove he is liable to pay state income taxes.
DETERMINATION
Statute of Limitations
Virginia Code § 58.1-1821 provides that "[any person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner." [Emphasis added.] Title 23 of the Virginia Administrative Code 10-20-165 provides additional requirements regarding the timely filing of administrative appeals. This regulation provides information to taxpayers about the process for appealing tax assessments, including how to file a complete and timely administrative appeal.
Pursuant to Va. Code § 58.1-1824, however, any person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing a claim for refund with the Tax Commissioner within three years of the date such tax was assessed.
The Taxpayer filed an appeal for the taxable years at issue with the Department by letter dated March 25, 2013. The assessment for the 2008 taxable year was issued on July 25, 2012. Although the Taxpayer did not file an administrative appeal of the 2008 assessment within 90 days of the date of the assessment as required by Va. Code § 58.1-1821, the assessment has been paid in part. Therefore, I will treat the Taxpayer's appeal with respect to that taxable year as a protective claim for refund. Because the Taxpayer filed such a claim within three years of the date of assessment, it was timely filed.
In addition, the assessment for the taxable year 2009 was issued on January 30, 2013. The appeal for this taxable year was filed within the statutory period for filing an appeal.
Taxability of Income
Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia "conforms" to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322. A resident of Virginia includes any natural person domiciled in Virginia at any time during a taxable year or who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia.
Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Va. Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes the Department to obtain information from the IRS that will enable the Department to determine the resident's tax liability.
Although the Taxpayer does not deny that he had income during the taxable years at issue, he contends that it was not FAGI because it was not earned in a federal area or enclave and, therefore, he did not have any Virginia taxable income. The Taxpayer apparently believes the IRC limits federal territory to the District of Columbia. The Taxpayer also admits to being an "inhabitant" of Virginia but claims he does not live in the “State of” Virginia. Thus, he argues he is not subject to any "State" income tax.
The Taxpayer also argues that Virginia must prove he is a taxpayer with income subject to Virginia taxation. Absent any documentation otherwise, the Taxpayer meets the definition of a resident of Virginia pursuant to Va. Code § 58.1-302. The Virginia Supreme Court has held "the power of the State of Virginia to levy taxes is not derived from the Constitution of the United States as interpreted by the Supreme Court. On the contrary, the State has the inherent and unlimited power of taxation unless restrained by its Constitution or the Constitution of the United States." See Colonial Pipeline Company v. Commonwealth of Virginia, 206 Va. 517, 145 S.E.2d 227 (1965). Thus, the fact that Virginia conforms with the IRC to determine Virginia taxable income does not in any way inhibit the Commonwealth's authority to impose an income tax on its residents.
Further, it has been well-established that a state may tax all the income of its residents, even income earned outside the taxing jurisdiction. In New York ex rel. Cohn v. Graves, 300 U.S. 308, 57 S.Ct. 466 (1937), the United States Supreme Court explained "[t]hat the receipt of income by a resident of the territory of a taxing sovereignty is a taxable event is universally recognized." Thus, any resident who has Virginia taxable income as determined under Virginia's statutes is subject to Virginia income tax.
As such, the claim that the Taxpayer's income is not subject to Virginia taxation has no basis in fact or Virginia law. An individual who fails to file Virginia income tax returns based solely on such claims has intentionally understated his or her income tax liability with the intent to evade tax and is subject to a 100% fraud penalty pursuant to Va. Code § 58.1-308.
Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an "assessment of a tax by the Department shall be deemed prima facie correct? As such, the burden of proof is on the Taxpayer to show he was not subject to income tax in Virginia. In this case, the Taxpayer has provided no objective evidence to show that the Department's assessment was incorrect.
In addition, Va. Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the assessment was attributable to the taxpayer's willful failure or refusal to provide the Department with necessary information as required by law.
Based on the applicable law cited above and the information presented, there is no basis to abate the Department's assessments for the 2008 and 2009 taxable years. Accordingly, the assessments for the taxable years at issue are correct and remain due and payable, and collection action will resume. Updated bills will be issued shortly, which will include accrued interest. Payment of the assessments should be made within 30 days of the bill date in order to avoid the accrual of additional interest.
The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely
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Craig M. Burns
Tax Commissioner
AR/1-5366600695.M
Rulings of the Tax Commissioner