Document Number
Tax Type
Individual Income Tax
Residency, Credit for Tax Paid to Another State
Date Issued

September 19, 2017

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 “Taxpayers”) for the taxable year ended December 31, 2013.


The Taxpayers, a husband and wife, filed a joint resident Virginia income tax return for the 2013 taxable year and claimed a credit for income tax paid to California. In January 2015, they filed an amended return, reducing the amount of credit claimed for income tax paid to California and paid the additional liability.  Under review, the Department denied the remainder of the credit claimed and issued an assessment.  The Taxpayers appealed, contending the amount of credit they claimed on the amended return was correct because they were not permitted to claim the full amount of Virginia income tax paid as a credit on their California nonresident return.


Generally, Va. Code § 58.1-332 allows Virginia residents a credit against their income tax liability when they pay income tax to another state on earned or business income, or on any gain from the sale of a capital asset. This code section further states:

The credit . . . shall not be granted to a resident individual when the laws of another state, under which the income in question is subject to tax assessment, provide a credit to such resident individual substantially similar to that granted by subsection B of this section.


Under Va. Code § 58.1-332 B, a nonresident is permitted to claim a credit against tax on income from Virginia sources when their state of residency provides a substantially similar credit to Virginia residents or imposes a tax upon their income derived from Virginia sources but does not tax income earned in the state by Virginia residents.  Because it is dependent on another state granting a similar or reciprocal credit, it may be limited by the credit permitted by the other state.  Currently, only residents of Arizona, California, Oregon, and the District of Columbia may qualify for this credit.

Virginia law generally does not allow a resident to claim a credit on his Virginia return for taxes paid to California because California law allows a Virginia resident to claim the credit on the California nonresident return.  Similarly, a California resident would claim the credit for tax paid to California on his Virginia nonresident return.

Under certain circumstances, the Department has permitted a credit for income tax paid to California.  See Public Document (P.D.) 97-98 (2/24/1998) and P.D. 07-207 (12/5/2007).  The Department has also addressed a number of issues under which the out-of-state credit would not be permitted.  See P.D. 95-175 (6/28/1995), P.D. 12-156 (10/04/2012) and P.D. 13-118 (6/27/2013).

In P.D. 94-355 (11/23/1994), the Department determined that when a reciprocity state does not allow credit on a nonresident return for individual income tax paid to another state, the individual may claim the credit on the Virginia resident income tax return.  Pursuant to Cal. Rev. & Tax. Code § 18002 (5), California nonresidents may not claim a credit for income tax paid to their states of residence against California's alternative minimum tax (AMT).

The Taxpayers contend that Virginia should allow the credit for income tax paid to California, to the extent they were not able to claim the credit on their California return because of the AMT limitation.  The Department has carefully reviewed the Taxpayers' California return and found that the Taxpayers did not pay the California AMT.  The AMT is defined as “a tax equal to the excess, if any, of (1) The tentative minimum tax for the taxable year, over (2) The regular tax for the taxable year.” See Cal. Rev. & Tax. Code § 17062(a). Because the Taxpayers’ tentative minimum tax (TMT) was less than their regular tax, no AMT was imposed. This fact is reflected on the Taxpayers’ 2013 California return.

It appears the Taxpayers were effectively treating the credit for income tax paid to Virginia as a credit that could not be used to reduce their liability below the TMT. Credits for taxes paid to other states appear to be allowed to reduce the liability below the TMT pursuant to Cal. Rev. & Tax. Code § 17039(c)(1)(Y).

On their 2013 California nonresident return, the Taxpayers claimed an amount of credit for income tax paid to Virginia that was equal to the difference between their total California tax (less the exemption credit) and the TMT.  The Taxpayers then claimed the amount of the TMT as a credit on their Virginia resident return. Because the credit for income tax paid to Virginia was allowed to reduce the Taxpayers’ California tax liability below the TMT, the Department properly disallowed the credit for income tax paid to California on the Taxpayers’ Virginia return.

Therefore, the assessment is upheld.  The Taxpayers will receive an updated bill which will include accrued interest to date. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collections actions.

The Code of Virginia sections and public documents cited are available on-line at 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 *****.



Craig M. Burns
Tax Commissioner



Last Updated 10/03/2017 12:09