Tax Type
Individual Income Tax
Description
North Carolina does not practice reciprocity with Virginia
Topic
Credits
Filing Status
Persons Subject to Tax
Date Issued
09-07-2010
September 7, 2010
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessment issued to your client, ***** (the "Taxpayer"), for the taxable year ended December 31, 2008.
FACTS
The Taxpayer, a resident of North Carolina, received income from a Subchapter S Corporation located in Virginia. The Taxpayer filed a 2008 Virginia nonresident income tax return and claimed a tax credit for the income tax paid to North Carolina. Under audit, the Department disallowed the tax credit and assessed additional tax and interest. The Taxpayer appeals the assessment, contending that reciprocal credits are appropriate.
DETERMINATION
Virginia Code § 58.1-332 B provides a credit to nonresidents on income from Virginia sources when their home state provides a substantially similar credit to Virginia residents or imposes a tax upon the income derived from Virginia sources that is exempt from taxation by Virginia. This credit does not contain the same limitations as the credit under Va. Code § 58.1-332 A. Accordingly, the credit available to nonresidents is not limited to earned or business income. However, because it is dependent on another state granting a similar credit, it may be limited by the credit permitted by the other state.
North Carolina does not allow an income tax credit to nonresidents. Because North Carolina does not practice reciprocity with Virginia for purposes of claiming the individual income tax credit on nonresident individual income tax returns under Va. Code § 58.1-332 B, the Taxpayer was not permitted to claim an individual income tax credit for taxes paid to North Carolina on income from Virginia sources.
Accordingly, the assessment is upheld. An updated bill will be mailed to the Taxpayer. The outstanding balance must be paid within 30 days of the bill date to avoid the accrual of additional interest.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Linda Foster
Deputy Tax Commissioner
- Linda Foster
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AR/1-4453025096.D
Rulings of the Tax Commissioner