Tax Type
Individual Income Tax
Description
Net Operating Loss
Topic
Federal Conformity
Records/Returns/Payments
Subtractions and Exclusions
Date Issued
04-02-2014
April 2, 2014
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, 2010.
FACTS
The Taxpayer, a resident of ***** (State A), filed a Virginia nonresident individual income tax return for the 2010 taxable year and reported income from certain pass-through entities doing business in Virginia. The Taxpayer, however, offset the income by carrying forward net operating loss deductions (NOLDs) attributable to the entities from prior taxable years.
Under audit, the Department disallowed the offset for the NOLDs because no NOLD was reported on the Taxpayer's federal income tax return. As a result, an assessment was issued. The Taxpayer appeals, contending that he will receive no tax benefit from the losses if he is not allowed to carry them forward for Virginia income tax purposes.
DETERMINATION
Individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. The Virginia taxable income of a nonresident is defined under Va. Code § 58.1-325 as "an amount bearing the same proportion to his Virginia taxable income, computed as though he were a resident, as the net amount of his income, gain, loss and deductions from Virginia sources bears to the net amount of his income, gain, loss and deductions from all sources."
In general, Virginia income tax laws do not address net operating losses. Nonetheless, Va. Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia have the same meaning as provided in the Internal Revenue Code, unless a different meaning is clearly required. Because the starting point in computing Virginia taxable income is federal taxable income, Virginia allows a NOLD to the extent that it is allowable in computing federal taxable income. As such, no NOLD can be carried forward to any year without a corresponding carryforward being permitted for federal income tax purposes. See Public Document (P.D.) 10-168 (8/10/2010).
In this case, the Taxpayer carried the NOLDs forward to the 2010 taxable year for Virginia income tax purposes but not for federal income tax purposes. Based on the information provided, it appears the net operating losses (NOLs) reported in previous taxable years were entirely offset by other income reported on the federal income tax return. As such, the Taxpayer could not apply the NOLDs to offset FAGI on his 2010 federal return. Under such circumstances, no NOLD could be claimed on the 2010 Virginia return.
In this case, the Taxpayer claims Virginia should permit the NOLDs because he could not receive a benefit from the NOLDs because he resided in State A, which does not impose an individual income tax. Regardless whether a taxpayer receives a benefit or not, however, there is no express authority in the Code of Virginia for a Virginia net operating loss. See P.D. 92-133 (8/4/1992) and Miller & Miller v. Department of Taxation, Circuit Court of Rockingham County, CL11001514-00 (10/2/2012).
Accordingly, the assessment is upheld. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 30 days from the date of the revised bill.
The Code of Virginia sections 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 determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
Craig M. Burns
- Sincerely,
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AR/1-5551581366.M
Rulings of the Tax Commissioner