Tax Type
Individual Income Tax
Description
Part-year return; Itemized deductions
Topic
Taxability of Persons and Transactions
Taxable Income
Date Issued
12-07-2000
December 7, 2000
Re: Request for a Ruling: Individual Income Taxation
Dear ****
This will reply to your letter in which you request a ruling on the application of itemized deductions to you (the "Taxpayers") as part-year residents of Virginia.
FACTS
The Taxpayers made a charitable contribution that consisted of shares of a mutual fund while they resided in another state ("State A"). During the taxable year the contribution was made, the Taxpayers moved to Virginia and became domiciliary residents. The Taxpayers intend to itemize their deductions on their federal income tax return in order to claim this charitable deduction. State A's tax structure does not allow charitable deductions. The Taxpayers request a ruling as to whether they may claim the charitable contribution as an itemized deduction on their Virginia part-year income tax return.
RULING
Code of Virginia § 58.1-303 (copy enclosed) provides that a person who becomes a resident of Virginia is subject to taxation during the period of Virginia residency. Title 23 of the Virginia Administrative Code ("VAC") 10-110-40 (copy enclosed) provides that individuals who become residents of Virginia during the taxable year are only taxed as a residents for that portion of the year that they reside in Virginia. Such part-year residents may only include itemized deductions when determining their Virginia taxable income if the payments that created the deduction were made when the taxpayers were Virginia residents.
In the instant case, the Taxpayers made the charitable contribution while they were residents of State A. In such circumstances, a taxpayer may not claim the itemized deduction on their Virginia part-year income tax return.
You contend that the deduction should be allowed because the shares of the mutual fund contributed to the charity were purchased with money that was earned while they previously resided in Virginia. Unfortunately, the residence of a taxpayer when he earns income does not determine whether the resultant deduction can be claimed on the taxpayer's part-year income tax return. Rather, the itemized deduction is sourced to the state where the taxpayers resided when the contribution was made.
Based on the facts as presented, the Taxpayers will not be able to deduct the charitable contributions in either State A or Virginia because State A imposes a tax on gross income (without adjustments for charitable contributions). The Taxpayers believe that this result is unfair, and must be an unintended consequence of the current regulation. You suggest that the current rules should not extend to preventing the deduction of a charitable contribution made at any time during a taxable year to a national organization headquartered in a state in which a taxpayer has never resided.
The statute and regulations were designed to tax only the portion of income attributable to the time a taxpayer lived in Virginia during a taxable year. Your situation is the result of the interaction between two different taxing jurisdictions rules and not any unfairness within Virginia's tax structure. If State A's tax structure was similar to Virginia, the Taxpayers would be able to deduct the full amount for the contribution in determining the full amount of the contribution in determining their State A income tax. In contrast, if Virginia were to mirror State A's system, the Taxpayer would not receive a deduction in either state. To carve out an alternative method as you suggest would reduce the deduction available to those individuals that made a contribution while in Virginia and after moving to State A.
While I sympathize with your situation, I cannot allow the Taxpayers to claim an itemized deduction for a charitable contribution that was made while they were residents of another state. If you have any questions regarding this ruling, you may contact * * * at * * *
Danny M. Payne
Tax Commissioner
Re: Request for a Ruling: Individual Income Taxation
Dear ****
This will reply to your letter in which you request a ruling on the application of itemized deductions to you (the "Taxpayers") as part-year residents of Virginia.
FACTS
The Taxpayers made a charitable contribution that consisted of shares of a mutual fund while they resided in another state ("State A"). During the taxable year the contribution was made, the Taxpayers moved to Virginia and became domiciliary residents. The Taxpayers intend to itemize their deductions on their federal income tax return in order to claim this charitable deduction. State A's tax structure does not allow charitable deductions. The Taxpayers request a ruling as to whether they may claim the charitable contribution as an itemized deduction on their Virginia part-year income tax return.
RULING
Code of Virginia § 58.1-303 (copy enclosed) provides that a person who becomes a resident of Virginia is subject to taxation during the period of Virginia residency. Title 23 of the Virginia Administrative Code ("VAC") 10-110-40 (copy enclosed) provides that individuals who become residents of Virginia during the taxable year are only taxed as a residents for that portion of the year that they reside in Virginia. Such part-year residents may only include itemized deductions when determining their Virginia taxable income if the payments that created the deduction were made when the taxpayers were Virginia residents.
In the instant case, the Taxpayers made the charitable contribution while they were residents of State A. In such circumstances, a taxpayer may not claim the itemized deduction on their Virginia part-year income tax return.
You contend that the deduction should be allowed because the shares of the mutual fund contributed to the charity were purchased with money that was earned while they previously resided in Virginia. Unfortunately, the residence of a taxpayer when he earns income does not determine whether the resultant deduction can be claimed on the taxpayer's part-year income tax return. Rather, the itemized deduction is sourced to the state where the taxpayers resided when the contribution was made.
Based on the facts as presented, the Taxpayers will not be able to deduct the charitable contributions in either State A or Virginia because State A imposes a tax on gross income (without adjustments for charitable contributions). The Taxpayers believe that this result is unfair, and must be an unintended consequence of the current regulation. You suggest that the current rules should not extend to preventing the deduction of a charitable contribution made at any time during a taxable year to a national organization headquartered in a state in which a taxpayer has never resided.
The statute and regulations were designed to tax only the portion of income attributable to the time a taxpayer lived in Virginia during a taxable year. Your situation is the result of the interaction between two different taxing jurisdictions rules and not any unfairness within Virginia's tax structure. If State A's tax structure was similar to Virginia, the Taxpayers would be able to deduct the full amount for the contribution in determining the full amount of the contribution in determining their State A income tax. In contrast, if Virginia were to mirror State A's system, the Taxpayer would not receive a deduction in either state. To carve out an alternative method as you suggest would reduce the deduction available to those individuals that made a contribution while in Virginia and after moving to State A.
While I sympathize with your situation, I cannot allow the Taxpayers to claim an itemized deduction for a charitable contribution that was made while they were residents of another state. If you have any questions regarding this ruling, you may contact * * * at * * *
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner