The Virginia Tax Commissioner upheld an upward adjustment to a taxpayer’s payroll factor attributing to Virginia all compensation that the taxpayer had reported to the Virginia Employment Commission (VEC) for purposes of the state’s unemployment insurance tax. The taxpayer, a Virginia-based contractor providing security services for the United States government, reported to the VEC compensation paid to employees working exclusively in foreign countries as an administrative convenience, even when the compensation was not properly reportable. In its Virginia payroll numerator, though, the taxpayer included only compensation that was subject to Virginia income tax withholding, despite the state’s regulatory presumption that compensation reported to the VEC equals compensation attributable to Virginia for purposes of the payroll factor. The taxpayer argued that including this information was a better reflection of compensation paid or accrued in Virginia given the location of its employees. The Commissioner rejected the taxpayer’s argument and upheld the adjustment because: (1) compensation subject to Virginia income tax withholding does not necessarily equal compensation attributable to Virginia for purposes of the payroll factor; and (2) the taxpayer did not provide sufficient evidence showing that the compensation reported to the VEC actually included compensation paid to employees working exclusively outside of Virginia. However, the Commissioner sent the matter back to the audit staff to consider any additional evidence the taxpayer might present to show which employees worked solely outside of Virginia. Va. Pub. Doc. No. 15-166 (Aug. 18, 2015).