April 11, 2016
Re: § 58.1-1821 Application: Withholding Tax
Dear *****:
This will reply to your letter in which you correction of the withholding tax assessment issued to ***** (the "Taxpayer") for the quarter ended March 2015. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a nonprofit organization located in Maryland. The Taxpayer opened a Virginia withholding tax account in 2002 and made regular quarterly withholding payments to the Department. The Taxpayer electronically filed a quarterly report for period ended March 2015 but remitted no withholding tax. The Department issued an assessment for the unpaid tax. The Taxpayer appealed the assessment, contending it is a nonprofit organization and has no place of business and no property in Virginia.
DETERMINATION
Withholding Tax
Virginia Code § 58.1-461 provides that employers must withhold taxes on wages of employees. 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, or a resident of the Commonwealth who performs or performed any service ... outside the Commonwealth for wages." As such, an employee who resided in Virginia, while performing services outside of Virginia, must have tax withheld regardless of where the employee works. Usually, a resident of Virginia is subject to Virginia income tax on all of his or her wages.
The Taxpayer asserts it has no place of business in Virginia. However, the Taxpayer provides no information as to whether or not it employs residents of Virginia. In fact, the Taxpayer has filed returns and paid Virginia withholding tax since 2002.
Under Va. Code § 58.1-461, however, an employer is not required to withhold any Virginia income tax if the employee provides a signed Employee's Virginia Income Tax Withholding Exemption Certificate (Form VA-4) that certifies that the employee incurred no Virginia income tax liability for the prior taxable year and will incur no Virginia income tax liability for the current taxable year. An employer is not required to determine whether the employee has claimed the correct number of exemptions.
Reciprocity
Virginia Code § 58.1-342 B grants the Department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income tax when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. In addition, employers are not required to withhold Virginia income tax from residents of these states. Virginia currently has this type of agreement with Maryland, West Virginia, and Pennsylvania.
Conversely, when an employee is a domiciliary or legal resident of Virginia and whose only Maryland source income is from salaries and wages, such salaries and wages are subject to income tax by Virginia. Under such circumstances, Maryland employers are required to withhold Virginia income tax from their employees to live in Virginia and commute to Maryland to work.
Review of the Department's records show the Taxpayer filed two withholding returns for the quarter ended March 2015. Thus, the assessment is based on information submitted by the Taxpayer or the Taxpayer's payroll service. As such, there is no basis for granting relief. Accordingly, the assessment, which has been paid in full, is upheld. The Taxpayer, however, should review its withholding records to determine if both returns were required for the quarter ended March 2015.
The Code of Virginia sections, and public documents 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/1-6064782749.D