December 28, 2021
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter submitted on behalf of your client, ***** (the “Taxpayer”), in which you appeal the partial denial of the refund claimed on his 2019 Virginia individual income tax return and an assessment issued for the taxable year ended December 31, 2020.
FACTS
The Taxpayer filed nonresident Virginia individual income tax returns for the 2019 and 2020 taxable years. Under review, the Department adjusted the 2019 return to change the nonresident allocation percentage to 100%. After the Taxpayer submitted a domicile questionnaire and supporting documentation, the Department agreed that he was a nonresident but concluded that the adjustment to the nonresident allocation percentage was correct based on a Form W-2 listing all of his wages as Virginia state wages. The Department subsequently made the same adjustment to the Taxpayer’s 2020 return and issued an assessment to recover part of the refund he had previously received. The Taxpayer appeals, contending the nonresident allocation percentage was computed correctly based on the number of days worked in Virginia.
DETERMINATION
Individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. The Virginia taxable income of a nonresident is defined under Virginia Code § 58.1-325 as “an amount bearing the same proportion to his Virginia taxable income, computed as though he were a resident, as the net amount of his income, gain, loss and deductions from Virginia sources bears to the net amount of his income, gain, loss and deductions from all sources.”
The Department has previously ruled that a nonresident who works in Virginia may apportion his salary to Virginia using a ratio of (1) the number of days or portion thereof spent in Virginia performing duties for his employer, divided by (2) the number of days or portion thereof spent anywhere performing duties for his employer. See Public Document 85-134 (6/18/1985).
It appears that in allocating 100% of the Taxpayer’s wages to Virginia, the Department relied solely on the fact that all of his wages reported on his Form W-2 were reported as Virginia state wages. While it is useful for informational purposes, the state wages box on the Form W-2 is not definitive proof that the income reported therein was properly sourced to the state shown. To determine the proper sourcing of income, reference must be made to all of the applicable facts and circumstances that may impact the analysis.
In this case, Virginia income tax was withheld by the employer at the Taxpayer’s request without taking into account the number of days the Taxpayer actually worked in Virginia. Because the Taxpayer was unsure how many days he would have to work in Virginia in any given year, he directed his employer to withhold Virginia income tax as an administrative convenience. Once the taxable year was over, the Taxpayer knew how many days he had worked in Virginia that year and reported the corresponding allocation percentage on his nonresident return.
The Taxpayer worked in Virginia for 29 days out of 233 total work days in 2019 and did not work in Virginia at all in 2020. The Taxpayer’s allocation using the ratio of days worked in Virginia to days worked everywhere was done in accordance with the Department’s policy. Accordingly, the 2019 and 2020 nonresident returns will be processed as filed. A refund will be issued accordingly for the 2019 taxable year and the assessment abated for the 2020 taxable year.
The Code of Virginia sections and public document 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/3908.X