58.1-486.2 - Withholding tax on Virginia source income of nonresident owners.
§ 58.1-486.2. Withholding tax on Virginia source income of nonresident owners.
A. For the privilege of doing business in the Commonwealth, a pass-throughentity that has taxable income for the taxable year derived from or connectedwith Virginia sources, any portion of which is allocable to a nonresidentowner, shall pay a withholding tax under this section, except as provided insubsection C.
B. 1. The amount of withholding tax payable by any pass-through entity underthis article shall be equal to five percent of the nonresident owner's shareof income from Virginia sources of all nonresident owners as determined underthis chapter, which may lawfully be taxed by the Commonwealth and which isallocable to a nonresident owner.
2. When determining the amount of withholding tax due under this section, thepass-through entity may apply any tax credits allowable under the Code ofVirginia to the pass-through entity that pass through to nonresident owners;provided that in no event may the application of any credit or credits reducethe tax liability of any nonresident owner under this article to less thanzero.
C. Withholding shall not be required:
1. For any nonresident owner, other than a nonresident corporation, who isexempt from the tax imposed by this article. An owner shall be exempt fromthe tax imposed by this article only if the owner is, by reason of theowner's purpose or activities, exempt from paying federal income taxes on theowner's Virginia source income. The pass-through entity may rely on thewritten statement of the owner claiming to be exempt from the tax imposed bythis article provided the pass-through entity discloses the name and federaltaxpayer identification number for all such owners in its return for thetaxable year filed under § 58.1-392;
2. For any nonresident owner that is a corporation that is exempt from thetax imposed by Article 10 (§ 58.1-400 et seq.). For purposes of thissubdivision, a corporation is exempt from the tax imposed by Article 10 onlyif the corporation, by reason of its purpose or activities, is exempt frompaying federal income taxes on the corporation's Virginia source income. Thepass-through entity may rely on the written statement of the person claimingto be exempt from the tax imposed by Article 10 provided the pass-throughentity discloses the name and federal taxpayer identification number for allsuch corporations in its return for the taxable year filed under § 58.1-392;or
3. When compliance will cause undue hardship on the pass-through entity.However, no pass-through entity shall be exempt under this subdivision fromcomplying with the withholding requirements of this section unless the TaxCommissioner, in his discretion, approves in writing the pass-throughentity's written petition for exemption from the withholding requirements ofthis section based on undue hardship. The Tax Commissioner may prescribe theform and contents of such a petition and specify standards for when apass-through entity will not be required to comply with the withholdingrequirements of this section due to undue hardship. The standards for unduehardship, determined by the Tax Commissioner in his discretion, shall takeinto account (among other relevant factors) the ability of a pass-throughentity to comply at reasonable cost with the withholding requirements of thissection and the cost to the Commonwealth of collecting the tax directly froma nonresident owner who does not voluntarily file a return and pay the amountof tax due under this chapter with respect to his allocable Virginia taxableincome.
D. 1. Each pass-through entity required to withhold tax under this sectionshall pay the amount required to be withheld to the Tax Commissioner at thesame time that the return under Article 9 (§ 58.1-390.1 et seq.), ifrequired, is to be filed.
2. An extension of time for filing the return under § 58.1-393.1 shall notextend the time for paying the amount of withholding tax due under thissection. In cases of an extension of time for filing, the pass-through entityshall pay, by the due date specified in subsection A of § 58.1-392, at least90 percent of the withholding tax due for the taxable year or 100 percent ofthe tax paid under this section for the prior taxable year, if that taxableyear was a taxable year of 12 months and tax was paid under this section forthat taxable year. The remaining portion of the tax due under this section,if any, shall be paid at the time the pass-through entity files the returnrequired under § 58.1-392. If the balance due is paid by the last day of theextension period for filing such return and the amount of tax due with thatreturn is 10 percent or less of the tax due under this section for thetaxable year, no penalty shall be imposed with respect to the balance soremitted. In addition to interest, if the underestimation of the balance oftax due exceeds 10 percent of the actual tax liability, there shall be addedto the tax as a penalty an amount equal to two percent per month of thebalance of tax due for each month or fraction thereof from the original duedate for the filing of the withholding tax return to the date of payment. Ifthe amount of withholding tax due under this section for the taxable year isless than the estimated withholding taxes paid for the taxable year by thepass-through entity, the excess shall be refunded to the pass-through entityor, at its election, established as a credit against withholding tax dueunder this section for the then current taxable year.
3. The Tax Commissioner may, if he believes it necessary for the protectionof trust fund moneys due the Commonwealth, require any pass-through entity topay over to the Tax Commissioner the tax deducted and withheld under thissection at any earlier time or times.
E. 1. Each nonresident owner shall be allowed a credit for that owner's shareof the tax withheld by the pass-through entity under this section; provided,that when the distribution is to a corporation taxable under Article 10 (§58.1-400 et seq.), the credit allowed by this subsection shall be appliedagainst the corporation's liability for tax under this chapter.
2. A nonresident owner's share of any withholding tax paid by thepass-through entity shall be treated as distributed to such nonresident owneron the earlier of (i) the day on which such tax was paid to the TaxCommissioner by the pass-through entity or (ii) the last day of the taxableyear for which such tax was paid by the pass-through entity.
F. 1. Every pass-through entity required to deduct and withhold tax underthis section shall furnish to each nonresident owner a written statement, asprescribed by the Tax Commissioner, showing (i) the amount of its allocableVirginia taxable income, whether or not distributed for federal income taxpurposes by such pass-through entity to such nonresident owner; (ii) theamount deducted and withheld as tax under this section; and (iii) such otherinformation as the Tax Commissioner may require.
2. A copy of the written statements required by this subsection shall befiled with the Virginia return filed under § 58.1-392 by the pass-throughentity for its taxable year to which the distribution relates. The writtenstatement shall be furnished to each nonresident owner on or before the duedate of the pass-through entity's return under § 58.1-392 for the taxableyear, including extensions of time for filing such return, or a later date asmay be allowed by the Tax Commissioner.
G. Every pass-through entity required to deduct and withhold tax under thissection is hereby made liable for the payment of the tax due under thissection for taxable years beginning on or after January 1, 2008. Any amountof tax withheld under this section shall be held in trust for the TaxCommissioner. No nonresident owner shall have a right of action against thepass-through entity in respect to any moneys withheld from such owner'sdistributive share and paid over to the Tax Commissioner in compliance withor in intended compliance with this section.
H. If any pass-through entity fails to deduct and withhold tax as required bythis section, and thereafter the tax against which such tax may be creditedis paid, the tax so required to be deducted and withheld under this sectionshall not be collected from the pass-through entity, but the pass-throughentity shall not be relieved from liability for any penalties or interest oradditions to tax otherwise applicable in respect of such failure to withhold.
(2007, c. 796; 2010, c. 120.)