Rulings of the Tax Commissioner

June 5, 2024

Re: § 58.1-1821 Application: Individual Income Tax    

Dear *****:

This will respond 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, 2022. 

FACTS

The Taxpayer was a resident of ***** (State A) during the 2022 taxable year. He received a temporary work assignment from his employer, a federal government agency with offices in Virginia. The Taxpayer worked on this assignment remotely from his State A residence. The employer withheld Virginia income tax. The Taxpayer filed a Virginia Special Nonresident Claim for Individual Income Tax Withheld (Form 763-S), requesting a refund of the tax that was withheld. The Department issued the refund based on this filing.

Under review, the Department requested that the Taxpayer provide a copy of his 2022 State A return. The Department subsequently disallowed the refund because the Taxpayer had subtracted the income attributed to his work in Virginia on the State A return. Accordingly, the Department issued an assessment to recover the refund. The Taxpayer appealed, contending that he was entitled to the refund because he did not reside or work in Virginia. 

DETERMINATION

Under Virginia Code § 58.1-325, individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. Virginia Code § 58.1-302 limits the term income and deductions from Virginia sources to the items of income, gain, loss and deductions attributable to the ownership of property in Virginia or the conduct of a business, trade, profession, or occupation in Virginia. Title 23 of the Virginia Administrative Code (VAC) 10-110-180 B provides that “net income…from Virginia sources includes salary, tips or wages earned in Virginia...” [Emphasis Added.]

In this case, although the office that gave the temporary assignment to the Taxpayer was in Virginia, he completed the work in State A. The wages from the assignment, therefore, were not earned in Virginia. Accordingly, the Taxpayer did not have Virginia source income during the 2022 taxable year and Virginia income tax should not have been withheld. 

The Department disallowed the refund because the Taxpayer subtracted the income for purposes of computing his State A taxable income on his State A return. The Department, however, cannot rely solely on another state’s return as the basis for adjusting the income reported on taxpayers’ Virginia income tax returns. An individual may have correctly reported their income on the other state’s return based on its laws and filing requirements. In this case, the Taxpayer bears the responsibility of reporting his income properly to State A and, if he failed to do so, he should file an amended return with State A. 

Virginia can only tax income within its limited jurisdiction. The fact that income is not reported to another state does not grant the Department authority to assign that income to Virginia. Instead, the Department must seek to attribute income based on factual evidence of residency or income from Virginia sources. See Public Document (P.D.) 23-107 (10/5/2023). 

Accordingly, Virginia income tax was erroneously withheld by the Taxpayer’s Virginia employer for the 2022 taxable year. As such, the assessment will be abated.

The Code of Virginia sections 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 (804) *****.

Sincerely,

James J. Alex
Tax Commissioner
Commonwealth of Virginia

AR/4749.B