Could a Maryland commuter recover Virginia tax withheld in error for 1997 through 2000 when the refund claims were not filed until April 2006?

Subject

Virginia requires claims for refund to be filed within three years from the due date

Plain-English summary

A Maryland resident commuted daily to Virginia for work from 1997 through 2000. He had no Virginia abode, was not a Virginia resident, and earned only wages in Virginia. Under Virginia's reciprocity with Maryland, those wages were not subject to Virginia withholding.

The employee had not completed the withholding exemption certificate that would have told his employer not to withhold Virginia tax. Without that form, the Virginia employer was required to withhold. The employee waited until April 2006 to file special nonresident refund claims for the four years.

Virginia acknowledged that tax had been overpaid but denied the refunds. Va. Code § 58.1-499 required a refund application to be received within three years from the last day prescribed for timely filing the return. The 1997-through-2000 claims were outside that period, leaving the Department no alternative but denial.

What this means for you

• Reciprocity did not automatically stop payroll withholding; the employee needed to give the employer the required exemption certificate.
• Tax withheld in error was still subject to Virginia's refund-claim deadline.
• Discovering an old overpayment after the limitations period did not revive the claim under the rule applied here.

Citations and references

• Va. Code § 58.1-470, employee withholding exemption certificate.
• Va. Code § 58.1-499, refunds and the three-year filing limitation.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-40

Original ruling text

April 20, 2007

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek a refund of the Virginia individual income tax withheld from * (the "Taxpayer"), for the taxable years ended December 31, 1997 through 2000.

FACTS

You represent that during the taxable years at issue, the Taxpayer commuted daily to work in Virginia from the state of Maryland. The Taxpayer did not maintain a place of abode in Virginia during these years, nor was the Taxpayer ever an actual or domiciliary resident of Virginia anytime during these years. The Taxpayer's only source of income in Virginia during these years was from salaries and wages.

The Taxpayer did not complete or sign a Virginia withholding exemption certificate for his employer. Nevertheless, the employer withheld Virginia tax from the Taxpayer's pay, as is required of a Virginia employer when an employee fails to complete and give a withholding certificate. Had the form been executed, the Taxpayer would have been exempt from Virginia withholding tax due to Virginia's reciprocity with Maryland.

In April 2006, the Taxpayer filed claims for refunds of the Virginia income tax withheld for the taxable years at issue. The Department denied the refund claims because the requests were made after the expiration of the statute of limitations for such refund requests. The Taxpayer contests this denial because the taxes were paid to Virginia in error.

DETERMINATION

Residents of Maryland whose only Virginia source income is from salaries and wages earned in Virginia are not subject to Virginia withholding. Under Va. Code § 58.1-470, every employee is required to furnish a signed withholding exemption certificate (currently Form VA-4), relating to the withholding exemptions claimed, to his employer at the time employment commences. The Form VA-4 provides a box to check if you are not subject to Virginia withholding.

When wages are withheld from an employee who is exempt from Virginia withholding, Virginia Code § 58.1-499 provides, in pertinent part:

In the case of any overpayment of any tax . . . whether by reason of excessive withholding, overestimating and overpaying estimated tax, error on the part of the taxpayer. . . the Tax Commissioner shall order a refund of the amount of the overpayment: to the taxpayer.

No refund under this section, however, shall be made for any overpayment of less than one dollar . . . nor shall any refund of any amount under this section be made, whether on discovery by the Department or on written application of the taxpayer, if such discovery is not made or such written application is not received within three years from the last day prescribed by law for the timely filing of the return . . . . [Emphasis added.]

In the instant case, the Form 763-S Virginia Special Nonresident Claim for Individual Income Tax Withheld forms were filed in April 2006. Because Virginia law requires claims for refund to be filed within three years from the due date of the return and the Taxpayer failed to meet this requirement, the Department has no alternative but to deny the Taxpayer's request for refund for the taxable years ended December 31, 1997 through 2000.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions regarding this determination, please contact * in the Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1055135800B