The Virginia Department of Taxation’s announcement that interest and penalties will be imposed on partnerships that don’t pay nonresident withholding taxes by the original due date caught some taxpayers off guard.
“I think Virginia did us all a dirty deed,” said Don Williamson, a tax accountant and a professor at Kogod School of Business at American University. “We all thought we could pay our taxes on June 1 and be free of any penalties.”
In a March 20 tax bulletin, the department announced a payment extension and penalty waiver extending due dates for some tax payments to June 1. The extension and penalty waiver were granted to provide tax relief amid the COVID-19 pandemic.
The bulletin said, “Taxes eligible for this payment extension and penalty waiver include individual, corporate, and fiduciary income taxes, as well as any estimated income tax payments that are required to be paid to the department during this period.” However, interest would continue to accrue from the original due date.
On April 22, the legislature approved budget amendments proposed by Gov. Ralph Northam (D) that will abate interest on income tax payments made by June 1.
The department later announced in a April 27 bulletin an interest waiver for payment of some types of income taxes, and clarified that the penalty waiver and payment extension announced March 20 don't apply to nonresident withholding tax. The department said, “as a result, interest and penalties will generally be imposed if they have not paid by the original due date for filing a passthrough entity return of income and return of nonresident withholding tax.”
The bulletin also states that "automatic six-month filing extensions are available for pass-through entities. No application or paperwork is required to qualify, but an extension payment must be made by the original due date to avoid payment-related penalties.”
In an April 27 statement to Tax Notes, the department said the clarification was made in response to questions following the March 20 tax bulletin about whether nonresident withholding qualified for the payment extension.
“This merely clarifies, but does not overturn, the prior tax bulletin,” the department added.
Williamson said taxpayers were under the impression that they didn’t have to pay the tax until June 1 and that there would be no penalties. “They certainly did a 360 degree change of their position . . . that I just feel was unjust,” he said.