Document Number
17-1
Tax Type
Individual Income Tax
Description
Out of State Tax Credit
Topic
Out of State Tax Credits
Statute of Limitations
Date Issued
01-12-2017

January 12, 2017

Re:     § 58.1-1821 Application:  Individual Income Tax

Dear *****:

This will reply to your letter in which ***** (the “Taxpayers”) request a refund of individual income tax for the taxable year ended December 31, 2011.

FACTS

The Taxpayers, California residents, filed a Virginia nonresident individual income tax return for the 2011 taxable year.  In September 2015, California disallowed the credit they claimed on their 2011 California return for the income tax paid to Virginia.  The Taxpayers paid the additional tax due and filed an amended Virginia return to claim credit for income tax paid to California.  The Department processed the return but denied the refund because the return was not filed within the statute of limitations.  The Taxpayers filed an appeal, contending the return was timely filed because it was filed within one year of the change to their California tax liability.

DETERMINATION

Out-of-State Tax Credit

Under Va. Code § 58.1-332 B, a nonresident is permitted to claim a credit against tax on income from Virginia sources when their state of residency provides a substantially similar credit to Virginia residents or imposes a tax upon their income derived from Virginia sources but does not tax income earned in the state by Virginia residents.  Because it is dependent on another state granting a similar or reciprocal credit, it may be limited by the credit permitted by the other state.  Currently, only residents of Arizona, California, Oregon, and the District of Columbia may qualify for this credit. The Taxpayers were eligible to claim the credit on their nonresident Virginia return because they filed a resident return with, and paid tax to, California.

Statute of Limitations

Generally, Va. Code § 58.1-1823 allows a taxpayer to file an amended return within three years from the last day prescribed by law for the timely filing of the return.  The Taxpayer's 2011 return was due May 1, 2012.  In order to have timely filed an amended return, the Taxpayer would have to have filed on or before May 1, 2015.  In this case, the Taxpayers' 2011 amended return was filed in May 2016, well after the general statute of limitations had expired.  Virginia Code § 58.1-1823, however, also includes a number of exceptions to the general rule when specific circumstances are present.

Under Va. Code § 58.1-1823 A (v), a taxpayer has one year from the final determination of a change made by any other state to file an amended return to request a refund, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change.  In September 2015, California notified the Taxpayers of the correction to their California return, and they paid the assessment.  They filed their amended Virginia return in May 2016.  Therefore, the amended return was timely filed under Va. Code § 58.1-1823 A (v).  See Public Document (P.D.) 15-226 (12/8/2015).

The Department initially denied the credit because the Taxpayers had not claimed a credit for income tax paid to California on their original Virginia return.  The Department cited Va. Code § 58.1-311.1, which provides in relevant part as follows:

If the amount of any individual taxpayer's income tax reported on a return filed with any other state for any taxable year is changed or corrected by such state as a result of an examination conducted by a competent authority of such state, and the taxpayer previously claimed a credit for such tax pursuant to § 58.1-332, the taxpayer shall file an amended return, or such other form as the Department may prescribe, reporting the effects of such change or correction on the taxpayer's Virginia individual income tax within one year after the final determination of such change or correction....

Thus, Va. Code § 58.1-311.1 requires a taxpayer to file an amended return when he has claimed credit for income tax paid to another state and such other state changes or correct his tax liability.  Nothing in this section, however, prevents a taxpayer from filing an amended return under Va. Code § 58.1-1823 to claim the credit if the other state changes his tax liability in such a way as to allow him to claim the credit with Virginia, even if it was not claimed on the original Virginia return.

Accordingly, the amended return will be processed as timely filed and the liability adjusted accordingly.  If an overpayment results, a refund will be issued.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site.  If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

 

Craig M. Burns
Tax Commissioner

 

 

 

AR/848.M

Rulings of the Tax Commissioner

Last Updated 02/27/2017 13:37