January 12, 2015
Re: § 58.1-1821 Application: Withholding Tax
Dear *****:
This will reply to your letter submitted on behalf of your client, ***** (the "Taxpayer"), in which you seek correction of the withholding tax assessments issued for the taxable periods January 2009 through December 2011. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer failed to file Virginia withholding tax returns from July 2009 through December 2011. Under review, the Department issued assessments for the taxable periods January 2009 through December 2011. The Taxpayer has appealed each assessment for various reasons, which are addressed separately below.
DETERMINATION
Withholding Tax
Virginia Code § 58.1-461 requires that every employer who pays wages to employees must withhold Virginia income tax from such employees' wages. Virginia Code § 58.1-460 defines "wages" for Virginia purposes as wages as defined in Internal Revenue Code (IRC) §§ 3401(a), 3402 and 3405. Virginia Code § 58.1-460 defines "employee" as "an individual, whether a resident or a nonresident of the Commonwealth, who performs or performed any service in the Commonwealth for wages".
Estimated Assessments
Virginia Code § 58.1-102 requires taxpayers to maintain suitable records that substantiate information required by the Department. In conducting an audit, the Department may examine a taxpayer's accounting records when possible to determine the nature of income and expense items. See Va. Code § 58.1-103. Because the Taxpayer failed to provide the requisite records, the Department estimated the Taxpayer's withholding tax liability pursuant to Va. Code § 58.1-111.
2009
The Taxpayer failed to report employee withholding for the third and fourth quarters of 2009. The Taxpayer appealed the 2009 assessment, claiming it has provided sufficient records to accurately reflect its Virginia withholding and provided copies of the 2009 Federal Form W-2s issued to its employees for the 2009. The information will be forwarded to the auditor and the 2009 assessment will be adjusted accordingly.
2010
The Taxpayer contends that it has insufficient payroll documents to reconstruct the withholding records from October 2010 to December 2010 and questions the Department's basis for the 2010 assessments. The Department's records show that the Taxpayer filed an Employer's Annual or Final Summary of Virginia Income Tax Withheld (copy enclosed) including Form W-2s for 2010. The assessments are based on this return filed by the Taxpayer. Without additional evidence from the Taxpayer, no adjustments can be made to the four quarterly assessments and the annual reconciliation assessment.
2011
The Taxpayer filed first and second quarter withholding returns in 2011. The Department issued an assessment for the remainder of the year based on available information.
The Taxpayer contends it ceased operations in November 2010 and closed out the business in May 2011. The Taxpayer filed bankruptcy in July 2011 and filed a final corporate income tax return for the 2011 taxable year in 2012.
CONCLUSION
In accordance with the documentation provided with the appeal, the Department will make the appropriate adjustments to the 2009 assessment. A revised bill will be issued shortly.
For 2010, the assessments are based on information previously submitted by the Taxpayer. However, the Taxpayer will be granted one last opportunity to provide the information required to correct the withholding tax liability.
Based on the information provided, it appears the Taxpayer was no longer required to withhold individual income tax after the second quarter of 2011. In order to verify this, the Department requests the Taxpayer provide a 2011 Employer's Annual or Final Summary of Virginia Income Tax Withheld, including Form W-2s.
The requested information for 2010 and 2011 should be provided within 30 days from the date of this letter to: Virginia Department of Taxation, Appeals and Rulings, Attention: *****, Post Office Box 27203, Richmond, Virginia 23261-7203. If not received within the time granted, the assessments will be upheld and become immediately due and payable
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5318428951.D