There are two instances when you are liable for state taxes:
1. In any state where you have income and
2. The state where you reside
If you were a resident of Virginia that year, then even though your income was from NY, you would have been required to file a VA state return, as well as a NY state return. But the way it works is that you would first pay tax to the state where your income was earned. You would then report that same income to your resident state, and your resident state would allow you a credit for the tax you already paid to the other state. If your resident state has a higher tax rate, then you would likely still owe some additional tax on that income. If your resident state had the same tax rate or a lower tax rate than the state where you worked, then you would owe no additional tax.
The problem here is that you likely did not file a return with VA. If you had, you could have claimed a credit for the tax you already paid to NY on that same income from your summer internship. You could still file a return and claim that credit, but I would imagine at this point in time you no longer have copies of your tax returns
and records going back that far -- which means this would really be impossible to do. So unless you can show that you also paid tax to NY on this same income, you would end up owing this tax bill.
VA has a 20 year statute of limitations on collecting tax. The 20 years starts from the date that the tax was finally assessed. So as an example if this was income you had in 1990 but the state did not actually assess the tax until 1992, they would have until 2012 to collect that tax.
As far as the penalties and interest they have assessed, generally they will never waive the interest charges for any reason. The penalties might be waived or partially waived if you request that they consider this, but there is no guarantee. Even though you are just now being notified, they likely did send you prior notices, but probably sent them to the last address they had on file for you. Once the collection agency took over the debt, they apparently dug a little deeper to find your current location.
But you do have the right to work directly with the state on this rather than the collection agency. All you need to do is write a letter to the collection agency stating your intention to work directly with the state on this matter. You could then write a letter to the state explaining the circumstances, and they may be willing to waive part or all of the penalties. Your other option of course is to find out the date this tax was actually assessed and see how much longer you have before collection activities will be suspended.
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Thank you blake.