Tax Type
Individual Income Tax
Description
Taxpayers were not eligible for a credit for taxes paid to State A
Topic
Out of State Tax Credits
Residency
Taxable Income
Date Issued
03-05-2013
March 5, 2013
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This is in response to your letter in which you seek correction of the individual income tax assessment issued to ***** (the "Taxpayers") for the taxable year ended December 31, 2010. I apologize for the delay in responding to your letter.
FACTS
The Taxpayers, a husband and wife, filed a Virginia part year return for the 2010 taxable year. The husband was a full year Virginia resident and the wife a part year Virginia resident. The wife lived and worked in ***** (State A) for a part of the 2010 taxable year. The Taxpayers filed a State A income tax return and paid income tax on the wife's wages earned in State A. The Taxpayers filed a Virginia income tax return, excluded the wages earned in State A from the Virginia taxable income and claimed a tax credit for the income tax paid to State A.
Under audit, the Department disallowed the tax credit and issued an assessment for additional tax and interest. The Taxpayers paid the assessment and filed an appeal contending the Department should allow the tax credit because the State A income was subject to Virginia income tax.
DETERMINATION
Virginia Code § 58.1-303 provides that a person who becomes a resident of Virginia is subject to taxation during the period in which he or she is a Virginia resident and is taxed as a resident only for the portion of the year that he or a she resides in Virginia. Generally, an individual who moves into or out of Virginia is permitted to file a part-year income tax return.
A married couple is permitted to file jointly on one part-year return when one spouse is a full-year resident and the other is a part-year resident. The part-year resident spouse must compute their income and deductions as provided under Va. Code § 58.1-303, while the full-year resident spouse would attribute all of their income and deductions to Virginia. The part-year resident spouse is allowed a prorated personal exemption, and the full-year resident spouse may be able to claim the full amount of the exemption.
In this case, the Taxpayers correctly attributed all of the husband's income, deductions, and personal exemption to Virginia, and appropriately attributed a portion of the wife's income, deductions, and exemption to Virginia. In addition, however, the Taxpayer's claimed a credit on the part-year return for taxes paid to State A.
Virginia 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. Virginia law does not necessarily allow a taxpayer to claim a credit for the total amount of tax paid to another state. Rather, the credit is limited to the lesser of the amount of tax actually paid to the other state or the amount of Virginia income tax actually imposed on the taxpayer on the income earned or derived in the other state. See Public Document (P.D.) 97-301 (7/7/1997).
Notwithstanding the provisions of Va. Code § 58.1-332, Va. Code § 58.1-303 prohibits part-year residents from claiming any credit against their Virginia tax liability for tax paid to any other state or jurisdiction of residence or domicile for that portion of the taxable year during which they were a resident of such other state or jurisdiction. Under this statute, the Taxpayers were not eligible for a credit for taxes paid to State A while the wife was a resident of State A.
Furthermore, when the Taxpayers filed their Virginia tax return, they excluded the State A wages from the Virginia taxable income. Because the wife's wages were excluded from Virginia taxable income, no Virginia income tax was imposed on the State A income and no credit can be permitted under the provisions of Va. Code § 58.1-332. Accordingly, the Department's assessment is upheld and no refund will be issued.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and 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 *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-5084584603.D
Rulings of the Tax Commissioner