Document Number
17-45
Tax Type
Individual Income Tax
Description
Taxpayer's claim that it is not required to pay income tax has no basis in fact or Virginia law.
Topic
Federal Conformity
Persons Subject to Tax
Returns and Payments
Date Issued
04-03-2017

April 3, 2017

Re:     § 58.1-1821 Application: Individual Income Tax

Dear *****:

This will reply to your letter in which you seek a refund of individual income tax paid by ***** (the “Taxpayer”) for the taxable years ended December 31, 2001, 2003, and 2005.  In addition, the Taxpayer seeks the correction of the individual income tax assessments issued for the taxable years ended December 31, 1997, 1998, 2010, 2011, and 2012.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia individual income tax returns for the taxable years issued.  The Department requested information to verify whether the Taxpayer was subject to Virginia income tax.  When an adequate response was not received, the Department issued assessments.

When the Taxpayer failed to pay the assessments, the Department initiated collection procedures including application of a third party lien and the garnishment of wages to satisfy the assessments.  Through these means, the assessments for 2001, 2003, and 2005 were collected.

The Taxpayer attempted to pay off all of her assessments three times with a hand drawn check on the United States Treasury.  The Department determined that the check was not valid and did not deposit the payment.

The Taxpayer has now filed an appeal contending that she was not a Virginia resident subject to Virginia income tax.  She also asserts that she satisfied the assessments by attempting to pay by check, and the Department violated her right to due process by collection of the assessments though wage garnishment.

DETERMINATION

Appeal - Statute of Limitations

Virginia Code § 58.1-1821 states, “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.  Such application shall be in the form prescribed by the Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention.”  Pursuant to Va. Code § 58.1-1821 and Title 23 of the Virginia Administrative Code (VAC) 10-20-165, a complete appeal must be filed with the Department within 90 days from the date of assessment.  In addition, Va. Code § 58.1-1820 provides that assessments made by the Department are deemed to be made when a written notice of assessment is mailed to a taxpayer at his last known address.

The Taxpayer filed an appeal for the taxable years at issue with the Department by letter dated February 6, 2016.  Accordingly, the Department only has jurisdiction to address the appeal of assessments issued on and after November 8, 2015.  The assessments for the 1997, 1998, 2010 and 2011 taxable years were all made well before November 8, 2015.  The only assessment issued after that date was the assessment for the 2012 taxable year.

Protective Claim for Refund

Pursuant to Va. Code § 58.1-1824, any person who has paid an assessment of taxes administered by the Department of Taxation may preserve her judicial remedies by filing a claim for refund with the Tax Commissioner within three years of the date such tax was assessed. Because the 2001, 2003 and 2005 assessments have been paid in full, they would be the only assessments eligible to treat as protective claims.

The most recent assessment paid by wage garnishment was on March 1, 2007. Under the statute, the Taxpayer would have been required to file a claim for refund by March 1, 2010.  The Taxpayer's appeal was not filed until February 6, 2016, well beyond the three year period allowed by Va. Code § 58.1-1824.  Therefore, the only taxable year addressed by this determination will be 2012.

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.

In addition, 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 starts 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 citizens.

Although the Taxpayer denies that she was a Virginia resident or that she had income during the taxable year at issue, the Department's information indicates that she was in fact a resident of Virginia under Virginia law who had earned income during the 2012 taxable year. All income would be included in the taxpayer's federal gross income under IRC § 61.  As such, it would also be taxable income for Virginia income tax purposes.  Because the amount of such income exceeded the applicable filing threshold under Va. Code § 58.1-321, the Taxpayer was required to file a Virginia return.

Payments

The Taxpayer contends that she attempted to pay her liability by check, which the Department incorrectly rejected.  Virginia Code § 8.3A-104 f defines a check which can be negotiated as “a draft, other than a documentary draft, payable on demand and drawn on a bank....”  In this case, the instrument with which the Taxpayer attempted to pay her tax liability was hand written and drawn on the Treasury of the United States.  This instrument could not legally be deposited because it was not drawn on a bank.  As such, the payment was properly disallowed by the Department.

Collection Action

The Taxpayer asserts that the Department violated her due process rights by garnishing on her wages.  Virginia collection procedures are specifically set forth in the Virginia statutes.  Virginia Code § 58.1-1804 provides that a third party lien may be used to satisfy a taxpayer's tax liability through the garnishment of wages.  The statute also authorizes the Department to begin collection actions if the outstanding liability is not paid within 30 days after the assessment was issued.  After continued refusal to pay the assessments, collection action commenced utilizing wage garnishment.

CONCLUSION

Based on the information provided, the Taxpayer's request for a refund of income tax paid for taxable years ended December 31, 1997 and 1998, December 31, 2001, December 31, 2003 and December 31, 2005 is denied.  The individual income tax assessments issued for the taxable years ended December 31, 1997 and December 31, 2010 through 2012 are upheld and remain due and payable.  Collection action as permissible by law will continue.

Further, the Taxpayer's claim that she is not required to pay income tax has no basis in fact or Virginia law.  An individual who fails to file income tax returns based solely on such a claim 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.

The Code of Virginia sections and regulations 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 response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

 

Craig M. Burns
Tax Commissioner

 

 

 

AR/668.B

Rulings of the Tax Commissioner

Last Updated 10/02/2017 07:20