Review Compliance with Wilmington City Tax Code
May, 2007
You may have watched KYW as reporters confronted an individual with a number of outstanding parking tickets in Wilmington. Recently, the City published in the News Journal the top one hundred scofflaws. The collection of outstanding parking tickets has been one of the methods used to improve the City of Wilmington financial affairs. Now, the City intends to apply a similar approach to outstanding income tax payments for residents, non-residents and business entities working or doing business within the City.
The City’s thrust will be audits of corporations looking for residents of the City and employees operating within the City. The City is armed with code provisions that allow the collection of delinquent employee wage taxes directly from the employer versus the employee. This provision is odious as the employer becomes responsible to first pay the tax, and then, attempt to collect from the employee. The second focus will be the identification of businesses operating within the City without licensure. The City is requiring non filers to go back six years so you can imagine the resulting tax, interest and penalties. Therefore, we want to clarify some of the Wilmington tax rules.
Residents of the City are taxed on their salaries and the net profits of their businesses or other activities, regardless of where the wages or net profits are earned. Non-residents of the City are also taxed on wages earned for services performed in the City and on the net profits earned in the City from “activities” that are conducted there. Employers are required to withhold City wage tax from employees that are City residents and for employees that perform their services within the City. The City code indicates an exemption from earned income tax on “occasional entry” into the City by a non-resident employee, but there is no real clarification of what occasional means. Therefore, the City has created a broad standard that captures doctors, lawyers, delivery personnel, real estate agents, and construction workers.
Company personnel should determine whether Wilmington withholdings are being withheld and remitted for all employees resident of the City. The city is encompassed by zip codes 19801-2, 19805-7, 19850 and 19899. (The City has published an address coding guide on its website that outlines in greater detail by City street.) As well, businesses that conduct activities partially within the City should consider whether employee withholdings can be justified. To minimize the impact on non-residents, employers should use residents if possible to do the occasional work in the City, such as making deliveries. In our opinion, you are better off to self-comply, establish procedures to calculate withholdings, and file timely returns versus awaiting an audit.
In next month's lunch byte; I will discuss licensure requirements within the city and other compliance reporting issues.
Please contact Marie Holliday at (302) 691-2211 or
MHolliday@CoverRossiter.com if you have any additional questions.