Tax Type
Individual Income Tax
Description
Information not sufficient to determine if the Taxpayer was eligible for a credit for taxes paid to states
Topic
Domicile
Out of State Tax Credits
Records/Returns/Payments
Date Issued
06-27-2013
June 27, 2013
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of an individual income tax assessment issued to your client, ***** (the Taxpayer) for the taxable year ended December 31, 2010. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a domiciliary resident of California. During the 2010 taxable year, the Taxpayer resided in Virginia for a part of the year and received business income from Virginia sources. Because the Taxpayer remained in Virginia for more than 183 days, she was required to file a Virginia resident income tax return. The Taxpayer filed a California individual income tax return and paid income tax on her income as a domiciliary resident. The Taxpayer filed a Virginia Form PY 760, and claimed a credit for income tax paid to California. The Department disallowed the credit on the Taxpayer's return and issued an assessment for additional tax and interest. The Taxpayer appeals the assessment, contending she is a dual resident and eligible for a tax credit under Virginia law.
DETERMINATION
Virginia Code § 58.1-303 A provides that a person who becomes a resident of Virginia is subject to taxation during the period of Virginia residency. When an individual maintains a place of abode in Virginia for more than 183 days, but less than the full year, they may file as a part-year resident of Virginia. See Public Document (P.D.) 89-160 (5/22/1989). In addition, Va. Code 58.1-303 prohibits an individual that files as a part-year resident from claiming the out-of-state tax credit under Va. Code § 58.1-332 on income tax payable to Virginia for any part of the taxable year during which they were a domiciliary or actual resident of another state.
In this case, the Taxpayer moved into Virginia in June 2010 and remained in Virginia through the end of the taxable year and filed a 2010 part-year return as permitted by statute. On the return, she claimed a credit for taxes paid to California, her state of domicile.
Generally, Va. Code § 58.1-332 allows Virginia residents a credit against their income tax liability when they pay income tax to another state on earned or business income, or on any gain from the sale of a capital asset. This code section further states:
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- 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 subsection B of this section.
Under Va. Code § 58.1-332 B, a nonresident is permitted to claim a credit from tax 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. 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.
The Taxpayer relies on the Department's determinations in P.D. 97-98 and P.D. 03-21 in which the Department granted tax credits to taxpayers who maintained residences in Virginia and California. As a general rule, Virginia law does not allow a Virginia resident to claim an out-of-state tax credit on his/her Virginia individual income tax return for taxes paid to California because California law allows the Virginia resident to claim the out-of-state tax credit on their California nonresident return. Similarly, a California resident would claim the credit for tax paid to California on his/her Virginia nonresident return. In both of those instances, the taxpayers were domiciliary residents of Virginia, contrary to this instance in which the Taxpayer is domiciled in California.
The Department has a long standing policy regarding an individual who has a dual resident of both California and Virginia. In P.D. 97-98 (2/24/1998), the Department determined that when California law did not permit a Virginia domiciliary resident to claim a credit for taxes paid to Virginia because he was an actual resident of California, the individual would be permitted to claim the credit on the Virginia resident individual income tax return. When an individual is a domiciliary resident of California, however, the Department's policy has been that California should allow a credit against its tax for the amount of Virginia income tax paid. See P.D. 87-161 (6/2/1987).
Because the Taxpayer was a domiciliary resident of California, she would not be entitled to a credit for taxes paid to California on her 2010 part-year Virginia return. However, the Taxpayer did file income tax returns in a number of states in which she was not a resident during 2010. As such, she may be entitled to an out-of-state credit for taxes paid to those other states if the taxes were incurred on income derived from those states while she was residing in Virginia.
The information available to the Department is not sufficient to determine if the Taxpayer was eligible for a credit for taxes paid to states where she filed returns as a nonresident. As such, it is recommended that the Taxpayer amend her 2010 Virginia individual income tax return. The amended return, along with any appropriate payment, should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****. If the amended return is not filed within the time prescribed, the assessment will be considered correct and collection action will resume.
The Code of Virginia sections and public documents 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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Craig M. Burns
Tax Commissioner
AR/1-5059574672.D
Rulings of the Tax Commissioner