Tax Type
Individual Income Tax
Description
Taxation of nonresident corporate directors
Topic
Persons Subject to Tax
Taxable Income
Date Issued
10-09-1990
October 9, 1990
Re: Ruling Request/ Individual Income Tax
Dear**************
This will reply to your letter dated April 4. 1990 in which you request a ruling on the state income tax liability and withholding requirements of nonresident employees of your parent company.
FACTS
Three employees of the parent company ******************located in ********* are also Directors of the Board **********(the "Taxpayer"), which is headquartered in Richmond, Virginia. These individuals are residents of West Germany. Semiannually, they meet in the United States for a period of five days each session.
Each individual is issued one check annually, in payment for services rendered everywhere as directors.
You request a ruling on the employees' liability to pay Virginia income tax and the employer's liability to withhold Virginia tax on the amounts received by the employees.
RULING
Income TaxNonresidents with income from a business, trade, profession or occupation carried on in Virginia are subject to state income tax and are required to file a Virginia nonresident income tax return. However, the requirement. to file a nonresident income tax return and pay tax does not apply if the Virginia adjusted gross income (VAGI) for the taxable year does not exceed $5,000 (or a combined total of $8,000 for married couples filing jointly, and $4,000 for married persons filing separately).
"VAGI" means federal adjusted gross income for the taxable year with certain additions and subtractions set forth in Va. Code §58.1-322.
The nonresident's taxable income, computed as if he were a Virginia resident, is multiplied by the ratio of his net income, gain, loss and deductions from Virginia sources to his net income, gain, loss and deduction from all sources to arrive at his Virginia taxable income as a nonresident.
"Income, gain, loss and deductions from Virginia sources" would be computed by apportioning the directors' fee income based upon the amount of time spent in Virginia performing these services as it relates to the total amount of time they perform these services both within and without Virginia. "Income, gain, loss and deductions from all sources" refers to the amount which is reportable as "Total Income" on the individual's federal Form 1040NR (whether or not the individual is required to file a federal return).
Withholding
Generally, the directors' fee would be subject to Virginia withholding if such fee is subject to federal withholding. If taxes are not withheld on such fees, the individual may be subject to the Virginia estimated tax requirements.
Enclosed are the pertinent sections from the Code of Virginia, Virginia tax regulations, and estimated income tax vouchers, with instructions.
I hope the foregoing information has answered your questions. However, please contact the department if you need additional information.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner