                                 CODE OF VIRGINIA

WITHHOLDING TAX ON VIRGINIA SOURCE INCOME OF NONRESIDENT OWNERS (§ 58.1-486.2)

A. For the privilege of doing business in the Commonwealth, a pass-through
entity that has taxable income for the taxable year derived from or connected
with Virginia sources, any portion of which is allocable to a nonresident owner,
shall pay a withholding tax under this section, except as provided in subsection
C.

B. 1. The amount of withholding tax payable by any pass-through entity under
this article shall be equal to five percent of the nonresident owner&#8217;s
share of income from Virginia sources of all nonresident owners as determined
under this chapter, which may lawfully be taxed by the Commonwealth and which is
allocable to a nonresident owner.

   2. When determining the amount of withholding tax due under this section, the
   pass-through entity may apply any tax credits allowable under the Code of
   Virginia to the pass-through entity that pass through to nonresident owners;
   provided that in no event may the application of any credit or credits reduce
   the tax liability of any nonresident owner under this article to less than
   zero.

C. Withholding shall not be required:

   1. For any nonresident owner, other than a nonresident corporation, who is
   exempt from the tax imposed by this article. An owner shall be exempt from the
   tax imposed by this article only if the owner is, by reason of the
   owner&#8217;s purpose or activities, exempt from paying federal income taxes
   on the owner&#8217;s Virginia source income. The pass-through entity may rely
   on the written statement of the owner claiming to be exempt from the tax
   imposed by this article provided the pass-through entity discloses the name
   and federal taxpayer identification number for all such owners in its return
   for the taxable year filed under &#xA7; 58.1-392;

   2. For any nonresident owner that is a corporation that is exempt from the tax
   imposed by Article 10 (&#xA7; 58.1-400 et seq.). For purposes of this
   subdivision, a corporation is exempt from the tax imposed by Article 10 only
   if the corporation, by reason of its purpose or activities, is exempt from
   paying federal income taxes on the corporation&#8217;s Virginia source income.
   The pass-through entity may rely on the written statement of the person
   claiming to be exempt from the tax imposed by Article 10 provided the
   pass-through entity discloses the name and federal taxpayer identification
   number for all such corporations in its return for the taxable year filed
   under &#xA7; 58.1-392;

   3. When compliance will cause undue hardship on the pass-through entity.
   However, no pass-through entity shall be exempt under this subdivision from
   complying with the withholding requirements of this section unless the Tax
   Commissioner, in his discretion, approves in writing the pass-through
   entity&#8217;s written petition for exemption from the withholding
   requirements of this section based on undue hardship. The Tax Commissioner may
   prescribe the form and contents of such a petition and specify standards for
   when a pass-through entity will not be required to comply with the withholding
   requirements of this section due to undue hardship. The standards for undue
   hardship, determined by the Tax Commissioner in his discretion, shall take
   into account (among other relevant factors) the ability of a pass-through
   entity to comply at reasonable cost with the withholding requirements of this
   section and the cost to the Commonwealth of collecting the tax directly from a
   nonresident owner who does not voluntarily file a return and pay the amount of
   tax due under this chapter with respect to his allocable Virginia taxable
   income; or

   4. For any nonresident person of the Commonwealth when the pass-through entity
   owns and leases four or fewer dwelling units in the Commonwealth, provided the
   pass-through entity discloses the name and federal taxpayer identification
   number for all such owners in its return for the taxable year filed under
   &#xA7; 58.1-392. For the purposes of this subdivision, the term
   &#8220;person&#8221; shall mean the same as that term is defined in &#xA7;
   55.1-1200.

D. 1. Each pass-through entity required to withhold tax under this section shall
pay the amount required to be withheld to the Tax Commissioner at the same time
that the return under Article 9 (§ 58.1-390.1 et seq.), if required, is to be
filed.

   2. An extension of time for filing the return under &#xA7; 58.1-393.1 shall
   not extend the time for paying the amount of withholding tax due under this
   section. In cases of an extension of time for filing, the pass-through entity
   shall pay, by the due date specified in subsection A of &#xA7; 58.1-392, at
   least 90 percent of the withholding tax due for the taxable year or 100
   percent of the tax paid under this section for the prior taxable year, if that
   taxable year was a taxable year of 12 months and tax was paid under this
   section for that 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
   return required under &#xA7; 58.1-392. If the balance due is paid by the last
   day of the extension period for filing such return and the amount of tax due
   with that return is 10 percent or less of the tax due under this section for
   the taxable year, no penalty shall be imposed with respect to the balance so
   remitted. In addition to interest, if the underestimation of the balance of
   tax due exceeds 10 percent of the actual tax liability, there shall be added
   to the tax as a penalty an amount equal to two percent per month of the
   balance of tax due for each month or fraction thereof from the original due
   date for the filing of the withholding tax return to the date of payment. If
   the amount of withholding tax due under this section for the taxable year is
   less than the estimated withholding taxes paid for the taxable year by the
   pass-through entity, the excess shall be refunded to the pass-through entity
   or, at its election, established as a credit against withholding tax due under
   this section for the then current taxable year.

   3. The Tax Commissioner may, if he believes it necessary for the protection of
   trust fund moneys due the Commonwealth, require any pass-through entity to pay
   over to the Tax Commissioner the tax deducted and withheld under this section
   at any earlier time or times.

E. 1. Each nonresident owner shall be allowed a credit for that owner&#8217;s
share of 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 applied
against the corporation&#8217;s liability for tax under this chapter.

   2. A nonresident owner&#8217;s share of any withholding tax paid by the
   pass-through entity shall be treated as distributed to such nonresident owner
   on the earlier of (i) the day on which such tax was paid to the Tax
   Commissioner by the pass-through entity or (ii) the last day of the taxable
   year for which such tax was paid by the pass-through entity.

F. 1. Every pass-through entity required to deduct and withhold tax under this
section shall furnish to each nonresident owner a written statement, as
prescribed by the Tax Commissioner, showing (i) the amount of its allocable
Virginia taxable income, whether or not distributed for federal income tax
purposes by such pass-through entity to such nonresident owner; (ii) the amount
deducted and withheld as tax under this section; and (iii) such other
information as the Tax Commissioner may require.

   2. A copy of the written statements required by this subsection shall be filed
   with the Virginia return filed under &#xA7; 58.1-392 by the pass-through
   entity for its taxable year to which the distribution relates. The written
   statement shall be furnished to each nonresident owner on or before the due
   date of the pass-through entity&#8217;s return under &#xA7; 58.1-392 for the
   taxable year, including extensions of time for filing such return, or a later
   date as may be allowed by the Tax Commissioner.

G. Every pass-through entity required to deduct and withhold tax under this
section is hereby made liable for the payment of the tax due under this section
for taxable years beginning on or after January 1, 2008. Any amount of tax
withheld under this section shall be held in trust for the Tax Commissioner. No
nonresident owner shall have a right of action against the pass-through entity
in respect to any moneys withheld from such owner&#8217;s distributive share and
paid over to the Tax Commissioner in compliance with or in intended compliance
with this section.

H. If any pass-through entity fails to deduct and withhold tax as required by
this section, and thereafter the tax against which such tax may be credited is
paid, the tax so required to be deducted and withheld under this section shall
not be collected from the pass-through entity, but the pass-through entity shall
not be relieved from liability for any penalties or interest or additions to tax
otherwise applicable in respect of such failure to withhold.

HISTORY: 2007, c. 796; 2010, c. 120; 2011, c. 766.