July 2, 2015
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 clients, ***** (the "Taxpayers") for the taxable year ended December 31, 2011.
FACTS
The Taxpayers filed a 2011 Virginia income tax return, claiming a credit to estimated tax from the 2010 taxable year. Because the Department had no record of the Taxpayers filing a Virginia individual income tax return for the 2010 taxable year, the estimated credit was denied. In addition, the Department reduced the Taxpayers out-of-state tax credit because the computation included the New York Metropolitan Commuter Transportation Mobility Tax (the "NY MCTMT") and issued an assessment.
In response, the Taxpayers filed a 2010 Virginia income tax return. The Department made a similar adjustment to the out-of-state tax credit on the 2010 return and also disallowed a credit to estimated taxes because it had no record of the Taxpayers filing a 2009 return. The reduced overpayment was applied toward the 2011 liability and the assessment was reduced. The Taxpayers filed an appeal, contending they had timely filed a 2009 individual income tax return and they correctly computed the out-of-state tax credits on the 2010 and 2011 returns.
DETERMINATION
Virginia Code § 58.1-499(A) provides that in the case of any overpayment of any tax, whether by reason of excessive withholding, overestimating and overpaying estimated tax, or error on the part of the taxpayer, the Tax Commissioner shall order a refund of the overpayment. Virginia Code § 58.1-499(D) specifies, however, in pertinent part that:
No refund under this section . . . shall be made . . . whether on discovery by the Department or on written application of the taxpayer, if such discovery is not made or such written application is not received within three years from the last day prescribed by law for the timely filing of the return, or within sixty days from the final determination of any change or correction in the liability of the taxpayer for any federal tax upon which the state tax is based, whichever is later.
Although the Taxpayers have not requested an actual refund, but have requested that an overpayment of tax for the one taxable year be applied against the income tax liability for the subsequent taxable year, the laws regarding refunds apply. As stated above, Va. Code § 58.1-499 requires that an application for refund must be received within three years from the last day prescribed by law for the timely filing of the return. See P.D. 91-116 (7/9/1991), P.D. 06-136 (10/30/2006) and P.D. 09-88 (5/28/2009).
The Taxpayers contend that they mailed their 2009 Virginia income tax return on June 15, 2010. The Taxpayers provided a copy of the certified mail receipt to support their claim. A review of the Department's records shows that the Department received the second installment of the Taxpayer's 2010 estimated payments on June 15, 2010. In addition, the address on the certified mail receipt is the same address provided on the Department's website for the estimated payment processing unit.
The first record the Department has regarding the Taxpayers' 2009 income tax return is the return filed in April 2014. Despite the fact that the Taxpayers have provided a copy of certified mail receipt, the Department can find no earlier evidence of a filed return for 2009. Because the first record the Department has regarding the filing of the 2009 return was received more than three years from the last day prescribed by law for timely filing the return (May 1, 2013), the Department does not have the authority to make a refund with respect to an overpayment that may exist for the 2009 taxable year.
Credit for Taxes Paid
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. A taxpayer claiming the out-of-state tax credit for income taxes paid to another state in a unified return must attach a statement to his return verifying (1) the taxpayer's prorata portion of the unified return's taxable income, and (2) the taxpayer's prorata portion of the tax paid to the applicable state by the partnership on the individual's behalf. See P.D. 07-207 (12/5/2007). When a unified return is filed in several states by a pass-though entity, a taxpayer's prorata portion of the unified return's taxable income for each state and the taxpayer's prorata portion of the tax paid to each applicable state must be listed separately in order to properly compute the limitation for each state's credit.
The Taxpayers contend the husband was a partner in two partnerships, which filed composite returns in a number of states. The Taxpayers assert that they are entitled to claim an out-of-state tax credit for the full amount of state income tax paid by the partnerships on behalf of the husband. The Department adjusted the out-of-state credit on both the 2010 and 2011 returns for the NY MCTMT.
Virginia Code § 58.1-332.2 B clarifies the circumstances in which a franchise, license, business, or occupational tax will not qualify as an income tax. A tax does not necessarily need to be a franchise, license, excise, business, or occupation tax to be disqualified for purposes of the out-of-state credit. Virginia Code § 58.1-332.2 C provides that "[t]he credits in §§ 58.1-332 and 58.1-332.1 shall apply only when the tax imposed in the other state or foreign country is substantially similar to the tax imposed by Article 2 (§ 58.1-320 et seq.), as defined by this section." (Emphasis added). Thus, a tax, regardless of type, must still be substantially similar to the Virginia individual income tax imposed under Va. Code § 58.1-320 et seq., which applies generally to all of the income of Virginia residents and all of the income of nonresidents sourced to Virginia.
The NY MCTMT is a state-administered tax imposed on employers and self-employed individuals who engage in business within the metropolitan commuter transportation district (the "MCTD"), which comprises certain counties in the New York City metropolitan area. The tax is administered by the State of New York for the benefit of the Metropolitan Transportation Authority, which receives the proceeds of the tax to preserve, operate, and improve transportation in that district. In this case, the husband became subject to the NY MCTMT during the taxable years in question because one of the partnerships had earnings attributable to the MCTD and was considered an employer. In P.D. 13-185 (10/18/2013), the Department found that NY MCTMT is not an income tax substantially similar to Virginia's individual income tax.
CONCLUSION
Based on the information provided, the Taxpayers filed their 2009 Virginia income tax return well after the expiration of the statute of limitations. As such, credit to estimated tax from the 2009 return cannot be claimed on the 2010 income tax return. In addition, the Department correctly reduced the out-of-state tax credits claimed on the 2010 and 2011 returns to disallow a credit for the NY MCTMT. The Department's adjustment to the 2010 overpayment is upheld, and I find no basis to abate or otherwise reduce the assessment for the 2011 taxable year.
An updated bill with interest accrued to date will be issued shortly. The Taxpayers should remit payment within 30 days of the date on the bill to avoid the accrual of additional interest.
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 *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5776114710.D