December 23, 2016
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 ***** (the "Taxpayer") for the taxable year ended December 31, 2012.
FACTS
The Taxpayer filed a Virginia resident individual income tax return for the 2012 taxable year and claimed a credit for income tax paid to ***** (State A). Under review, the Department denied the credit and issued an assessment because the State A return indicated she had received a full refund of the amount of State A income tax that had been withheld from her wages. The Taxpayer appealed, contending she was eligible to claim the credit because she paid tax to State A.
DETERMINATION
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). In addition, the credit is allowable only with respect to income tax liability to another state incurred within the same taxable year as the liability is incurred to Virginia. See Title 23 of the Virginia Administrative Code (VAC) 10-110-220.
The Taxpayer's State A return indicates that she received a full refund of the amount of State A income tax that had been withheld from her wages. The Taxpayer claimed the same amount as a credit for tax paid to State A on her Virginia return. A taxpayer, however, may not claim a credit on her Virginia return for tax paid to another state to the extent the tax was refunded. Otherwise, she would receive a double benefit of not only a tax refund, but also credit for such refund against her Virginia income tax liability. Accordingly, the Department's assessment is upheld.
The Taxpayer should be aware that if she pays tax to State A as a result of any change or correction made by State A to her return, she may file an amended Virginia return within one year of the final determination of such change or correction to claim a credit for the tax paid. See Va. Code § 58.1-1823 A (v).
The Code of Virginia sections, regulation and public document 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/1-6180904167.M