November 14, 2024
Re: § 58.1-1821 Appeal: Individual Income Tax
Dear *****:
This will respond 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, 2022.
FACTS
The Taxpayers, a husband and a wife, filed a joint Virginia resident individual income tax return for the 2022 taxable year, claiming a subtraction for salaries of federal and state employees under $15,000. The Department denied the subtraction and issued an assessment. The Taxpayers applied for correction, contending that the wife qualified for the subtraction as a state employee because she worked in the office of an attorney for the Commonwealth.
DETERMINATION
Virginia Code § 58.1-322.02 16 allows a subtraction for “[t]he first $15,000 of salary for each federal and state employee whose total annual salary from all employment for the taxable year is $15,000 or less.”
By reason of their character as legislative grants, statutes relating to deductions and subtractions allowable in computing income and credits allowed against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority. See Howell’s Motor Freight, Inc., et al. v. Virginia Dep’t of Taxation, Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983).
The statutory language first grants a subtraction (“the first $15,000 of salary for each federal and state employee”), then imposes a restriction (“whose total annual salary from all employment for the taxable year is $15,000 or less”). If the wife was a “federal or state employee,” then she is granted the subtraction, subject to the limiting condition imposed by the last clause.
The term “state employee” is undefined for the purposes of this subtraction. The Taxpayers argue that in the absence of an applicable definition, the definition of “state employee” under Virginia Code § 51.1-124.3 should control. This section defines terms used in Chapter 1 of Title 51.1 of the Code of Virginia pertaining to the Virginia Retirement System (VRS). In part, “state employee” is defined there as:
any person who is regularly employed full time on a salaried basis, whose tenure is not restricted as to temporary or provisional appointment, in the service of, and whose compensation is payable, no more often than biweekly, in whole or in part, by the Commonwealth or any department, institution, or agency thereof.
The Taxpayers assert that the wife qualified for the subtraction as a salaried law clerk working for an institution or agency of the Commonwealth. Even if she met the requirement for full-time, salaried employment whose tenure was not restricted as to temporary or provisional appointment, the definition of state employee cited by the Taxpayers expressly excludes local officers and certain other categories of employees after the quoted text. “Local officer” is itself a defined term in Virginia Code § 51.1-124.3 and includes, among other local officials, an attorney for the Commonwealth and any deputy or employee thereof. As an employee working in the office of an attorney for the Commonwealth, the wife was not a state employee as defined in Virginia Code § 51.1-124.3.
In addition, under Virginia Code § 51.1-700, state and local employees are distinguished for purposes of certain state law provisions pertaining to federal social security benefits for such employees. Under this provision, attorneys for the Commonwealth, along with their employees, are defined as local employees separate and distinct from state employees. Another example where state and local employees are distinguished is in the context of health plans for such employees, which are governed by separate statutory provisions. See Virginia Code §§ 2.2-2818 and 2.2-1204, respectively. Attorneys for the Commonwealth and their employees are specifically defined as local officers under Virginia Code § 2.2-1204.
In the Department’s opinion, law clerks or other employees of an attorney for the Commonwealth are not state employees for purposes of the subtraction. This conclusion is consistent with a prior determination of the Department which held that a local school board member was not a state employee for purposes of the subtraction either. See Public Document (P.D.) 17-58 (4/26/2017). Accordingly, the Department finds that the subtraction claimed by the Taxpayers for salaries of state and federal employees was properly disallowed.
The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public document cited is available at tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4701.Y