Document Number
19-18
Tax Type
Individual Income Tax
Description
Credit for Tax Paid to Another State - Arkansas
Topic
Appeals
Out of State Tax Credits
Date Issued
03-21-2019

 

March 21, 2019

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, 2015.

FACTS

The Taxpayers filed a 2015 Virginia resident individual income tax return and claimed a subtraction for Arkansas source income.  The Department denied the subtraction and issued an assessment. The Taxpayers appealed, contending they were eligible to claim a subtraction for income sourced to another state.

DETERMINATION

Virginia Code § 58.1-301 provides, with certain exceptions, that the terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income (VTI) with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Virginia Code § 58.1-322.01 through § 58.1-322.04.  

Virginia law does not allow a taxpayer to subtract another state’s source income from FAGI for purposes of computing VTI. Instead, 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 or gain from the sale of a capital asset. 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). The limitation is computed by multiplying the individual’s Virginia tax liability by a fraction, the numerator of which is the income upon which the other state's tax is imposed, and the denominator of which is Virginia taxable income.

Information provided with the Taxpayers’ appeal indicates that they paid income tax to Arkansas. Therefore, they were eligible for the credit for income tax paid to another state under Virginia Code § 58.1-332. The computation of the credit with respect to Arkansas is described more fully in P.D. 16-147 (7/20/2016). The case will be returned to the audit staff to compute the allowable credit and issue a revised assessment or refund, as warranted.  

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, located at www.tax.virginia.gov. 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

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Last Updated 04/19/2019 15:45