Did merchant-seaman protections exempt a nonresident NOAA survey technician from Virginia tax on ship-related work?

Subject

Merchant Seaman Protections and Relief

Plain-English summary

Virginia required the nonresident NOAA survey technician to file a nonresident return and allocate wages by Virginia workdays. The federal merchant-seaman rule did not exempt her.

The federal statute protected qualifying masters, officers, or crewmembers on vessels operating in more than one state's navigable waters from another state's income tax. Virginia found that scientific personnel conducting geological or oceanographic surveys were not seamen for this purpose.

The ship spent much of the year in international waters but returned to its Virginia homeport. While in Virginia, the technician planned surveys, maintained and calibrated equipment, inventoried and loaded supplies, off-loaded instruments, and reported results. Those were Virginia services.

Her Virginia-source wages had to be calculated using Virginia workdays divided by total NOAA workdays. Filing the nonresident return would allow the Department to adjust the existing assessment.

What this means for you

• Working aboard a vessel does not automatically create merchant-seaman protection.
• Job function and statutory status matter more than the shipboard setting.
• Nonresidents performing some duties in Virginia should keep detailed workday and duty-location records.

Citations and references

• 46 U.S.C. § 11108.
• Va. Code §§ 58.1-325, 58.1-302, and 58.1-205.
• P.D. 88-256 (September 9, 1988).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-204

Original ruling text

December 5, 2007

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * (the "Taxpayer") for the taxable year ended December 31, 2001.

FACTS

During the 2001 taxable year, the Taxpayer, a resident of * (State A), worked aboard a *** (NOAA) ship. The ship would operate in international waters for nine months of the year and return to its homeport in Virginia for the winter months. During the winter months, crewmembers would return home or vacation. They could, however, live aboard the ship while it was in its Virginia port. Crewmember mail was sent to a federal building in Norfolk where it was forwarded to the crewmembers.

Pursuant to an audit, the Department determined that the Taxpayer had income from Virginia sources and assessed Virginia income tax. The Taxpayer contests the assessment and contends that she is not subject to income tax because she was a resident of State A and that Virginia is prohibited from withholding tax from crewmembers on certain vessels.

DETERMINATION

Merchant Seaman Protections and Relief

The Taxpayer argues that she is exempt from taxation under 46 U.S.C. § 11108. This code section addresses employer income tax withholding with regard to merchant seamen and state and local income taxation. This law does not exempt a domiciliary or nondomicilary resident from state income taxation, but prohibits the mandatory withholding of state or local taxes from crewmembers on certain vessels.

Under 46 U.S.C. § 11108 (b)(2)(B), an individual "who performs regularly assigned duties while engaged as a master, officer, or crewman on a vessel operating on the navigable waters of more than one State" is not subject to the income tax laws of a state other than the state in which the individual resides. Based on the evidence provided, the Taxpayer was not a resident of Virginia for the taxable year at issue.

The statute, however, only applies to seaman. Scientific personnel performing geological surveys aboard oceanographic research vessels are not seaman for purposes of the statute, and therefore are not exempt from state income taxation in nonresident states. As a survey technician aboard an oceanographic research vessel, the Taxpayer was not a seaman under 46 U.S.C. § 11108 and, therefore, not exempt from Virginia income tax.

Nonresident Taxation

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 Va. 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." Under Va. Code § 58.1-302, "income and deductions from Virginia sources" includes income from "[a] business, trade profession or occupation carried on in Virginia."

Generally, nonresident individuals who perform services both within and without Virginia must compute their Virginia source income by apportioning their income between Virginia and the other states in which they produce income. Such apportionment should be based upon factors that most equitably determine the individual's portion of total income that is attributable to services performed in Virginia.

The Tax Commissioner has determined that it is most equitable to apportion income earned by certain nonresident employees who perform services both within and without Virginia on the basis of the ratio of work days spent within Virginia to the total number of work days. This apportionment ratio has been applied to boat captains in Public Document (P.D.) 88-256 (9/9/1988).

According to the information provided, the ship was based in Virginia but operated in the coastal waters off New England, the Gulf of Mexico, and the Caribbean. The ship's primary function was to take hydrographic and bathymetric surveys involving nautical charting and ocean mapping. As a senior technician on the ship, the Taxpayer's responsibilities included duties that where performed before the ship left port and after it returned to Virginia waters. These activities included planning for a survey operation, maintaining and calibrating survey equipment, taking inventories of supplies and equipment, loading and off-loading supplies and instruments, and reporting survey results. Accordingly, the Taxpayer did perform services for the NOAA in Virginia.

Based on the work duties performed in Virginia, the Taxpayer had Virginia source income for the 2001 taxable year. The Taxpayer's salaries and wages from Virginia sources would be calculated based on the ratio of work days spent within Virginia during 2001 to the total number of days she worked for the NOAA.

Based on this determination, the Taxpayer must file a 2001 Virginia nonresident income tax return in order to properly report her Virginia income as a nonresident. The return should be filed within 30 days from the date of this letter. Mail or otherwise deliver the return to the Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *.

Upon receipt of the 2001 nonresident income tax return, the Department will make the appropriate adjustments to the assessment. If the return is not filed within the allotted time, the current assessment will be deemed to be prima facie correct under Va. Code § 58.1-205. In such case, collection action on the outstanding assessment will resume.

The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact * at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1401728547B