Tax Type
Individual Income Tax
Description
Standard Deduction for Nonresident Aliens
Topic
Federal Conformity
Filing Status
Persons Subject to Tax
Date Issued
10-18-2013
October 18, 2013
Re: Request for Ruling: Individual Income Tax
Dear *****:
This will reply to your letter in which you request a ruling concerning the eligibility of a nonresident alien to claim a standard deduction on the Virginia individual income tax return.
FACTS
Under federal law, a nonresident alien may be allowed certain itemized deductions, but may not claim a standard deduction. In Public Document (P.D.) 97-140 (3/24/1997), the Department ruled that nonresident aliens could not claim a standard deduction on a Virginia income tax return, even if they did not claim any itemized deductions on their federal return. You request the Department reconsider its position and issue a new ruling indicating that a nonresident alien who does not actually claim any itemized deductions for federal tax purposes can claim a standard deduction on the Virginia return.
RULING
Standard Deduction for Nonresident Aliens
According to the ruling request, the language of Va. Code § 58.1-322 permits a nonresident alien who does not claim an itemized deduction amount on the federal return to claim a standard deduction on the Virginia return. Further, Title 23 of the Virginia Administrative Code (VAC) 10-110-143, in fact, requires any taxpayer who does not actually itemize deductions on the federal return to claim the standard deduction on the Virginia return. You assert the regulation applies to nonresident aliens.
Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. One of the ways Virginia "conforms" to federal law is in the treatment of the itemized and standard deductions when computing Virginia taxable income. See P.D. 89-225 (8/24/1989) and P.D. 13-72 (5/16/2013).
By reason of their character as legislative grants, statutes relating to deductions and subtractions allowable in computing income and credits allowed against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority. See Howell's Motor Freight, Inc., et al. v. Virginia Dep't of Taxation, Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983).
IRC § 63(c)(6)(B) provides that a nonresident alien individual is not eligible for the federal standard deduction. Treasury Regulation § 1.873-1(a)(4) further provides that "[t]he standard deduction shall not be allowed in computing the taxable income of a nonresident alien individual." This regulation addresses the itemized deductions that may be claimed by nonresident aliens in determining federal taxable income; however, these deductions are limited. A nonresident alien, therefore, is only allowed to claim certain itemized deductions and is not allowed to claim a standard deduction under federal law.
Under Va. Code § 58.1-322 D 1 b, taxpayers may claim the Virginia standard deduction only if they have not elected to itemize deductions on their federal income tax return. Title 23 VAC 10-110-143(1)(a) provides in pertinent part:
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- Any taxpayer who itemizes his deductions for federal income tax purposes must also itemize deductions for Virginia income tax purposes. The federally allowable amount of itemized deductions... shall be subtracted from FAGI in determining Virginia taxable income, but must be reduced by any amount claimed as a deduction for income taxes paid to Virginia or any other state, locality, foreign country, or other taxing jurisdiction. (Emphasis added.)
In P.D. 97-140, the Department reasoned that because a nonresident alien must itemize deductions for federal tax purposes, the individual must itemize deductions for Virginia tax purposes, even if he does not actually claim an itemized deduction amount on the federal return.
The applicable federal and Virginia statutes and regulations have remained unchanged in all relevant ways since the publication of P.D. 97-140. In Peyton v. Williams, 206 Va. 595, 600, 145 S.E.2d 147, 151 (1965), the Virginia Supreme Court (the "Court) stated:
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- The elementary rule of statutory interpretation is that the construction accorded a statute by public officials charged with its administration and enforcement is entitled to be given weight by the court. The legislature is presumed to be cognizant of such construction. When it has long continued without change the legislature will be presumed to have acquiesced therein.
Similarly, the Court has consistently held that the construction of a tax statute by a state official charged with its administration is entitled to great weight. See Webster Brick Co., Inc. v. Dep't of Taxation, 219 Va. 81, 245 S.E.2d 252 (1978) and Winchester TV Cable v. State Tax Comm'r, 216 Va. 286, 217 S.E.2d 885 (1975).
A number of years have passed since the Department published P.D. 97-140. A lack of action by the General Assembly, especially over such a period, evinces legislative acquiescence in the Departments interpretation. Accordingly, it will continue to be the Departments policy that a nonresident alien is not eligible to claim a standard deduction for Virginia tax purposes, even if the individual does not claim an itemized deduction amount on the federal return.
Students and Business Apprentices from India
The request also asserts the policy announced in P.D. 97-140 should not apply to students and business apprentices from India who are eligible for the federal standard deduction under Article 21(2) of the United States-India Income Tax Treaty (the “Treaty”).
Generally, under Article 21(1) of the Treaty, students and business apprentices from India who come to the United States for educational or training purposes are exempt from U.S. tax on payments which arise outside the United States for their maintenance, educational, or training purposes.
Under Article 21(2) of the Treaty, students or business apprentices from India who receive grants, scholarships, or remuneration from employment not exempt from tax under Article 21(1) are generally entitled to the same exemptions, reliefs, or reductions as U.S. residents even if they are considered nonresident aliens for tax purposes. As such, these individuals may claim a standard deduction on the federal return provided they do not itemize deductions. See Revenue Procedure 93-20.
Pursuant to P.D. 97-140, Virginia conforms to federal law in its treatment of itemized and standard deductions when computing Virginia taxable income. Accordingly, if a student or business apprentice from India may properly claim a standard deduction on the federal return pursuant to the Treaty, then the individual may claim a standard deduction on the Virginia return as well.
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulation, and public documents 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 ruling, 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/1-5365563046.M
Rulings of the Tax Commissioner