Tax Type
Individual Income Tax
Description
Domicile, Taxpayer possesses dual residency.
Topic
Credits
Residency
Date Issued
03-20-2003
March 20, 2003
Re: § 58.1-1821 Application: Individual Income Tax
Dear ********************:
This will reply to your letter in which you seek the correction of an individual income tax assessment issued to ***** (the "Taxpayer") for the 1999 taxable year.
FACTS
The Taxpayer is a domiciliary resident of Virginia. During the 1999 taxable year, the Taxpayer resided in California and received earned and business income. Because of the length of time he spent in California, he was considered an actual resident of that state for individual income tax purposes. The Taxpayer filed a California individual income tax return and paid income tax on his income as a resident. The Taxpayer filed Form 760, Virginia individual Income Tax Return, as a domiciliary resident, claiming credit for income tax paid to California as an actual resident.
The Department disallowed the credit on the Taxpayer's return. The Taxpayer contends the credit was properly claimed and requests that the assessment be abated.
DETERMINATION
Va. Code § 58.1-332(A) allows Virginia residents a credit on their Virginia return for income taxes paid to another state provided the income is either earned or business income. Further, this Code section states:
The credit . . . shall not be granted to a resident individual when the laws of another state, under which the income in question is subject to tax assessment, provide a credit to such resident individual substantially similar to that granted by . . . this section.
As a general rule, Virginia law does not allow a resident to claim a credit on his Virginia return for taxes paid to California because California law allows a Virginia resident to claim the credit on his California nonresident return. Similarly, a California resident would claim the credit for tax paid to California on his Virginia nonresident return.
In this particular case, however, the Taxpayer was considered a resident of both states. Because of the length of time spent in California, the Taxpayer was subject to tax as an actual resident of California. At the same time, he maintained his Virginia domicile. At issue here is which state should allow the out-of-state credit when a taxpayer possesses dual residency.
The Department previously issued a ruling that is relevant to the case at hand. See Public Document ("P.D.") 97-98 (2/24/98). In this ruling, the Department determined that when California law did not permit a Taxpayer to claim a credit for taxes paid to Virginia because of his actual residency status, the Taxpayer would be allowed to claim the credit on the Virginia resident individual income tax return.
In the instant case, California law does not permit the Taxpayer to claim a credit on his individual income tax return for taxes paid to Virginia because the Taxpayer is regarded as a California resident. Consequently, the credit will be recomputed in accordance with the Department's written policy.
Accordingly, your request for relief is granted. Enclosed is a schedule showing the corrected computation of the Taxpayer's 1999 Virginia tax liability. The revised balance due should be paid in full within 30 days from the date of this letter to avoid the accrual of additional interest. Please forward your payment to the attention of ***** Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 1880, Richmond, Virginia 23218-1880.
The public document cited and other reference documents are available online in the Tax Policy Library section of the Department's web site, located at www.tax.state.va.us. If you have any further questions or desire additional information, please contact ******** at ********.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR42002E
Rulings of the Tax Commissioner