Tax Type
Individual Income Tax
Description
Partnership
Topic
Appropriateness of Audit Methodology
Date Issued
11-29-1982
November 29, 1982
Re: 58-1118 Application: Individual Income Tax
Dear*********************
This will reply to your correspondence of October 28, 1982, an application for correction of individual income tax assessed *************for the taxable year 1979.
Facts
The taxpayer, a South Carolina resident, was a partner in a Maryland partnership which owned real estate located in Virginia. This real estate was later sold for cash and notes. The installment method was used to report income from the sale. The notes were held by the partnership in Maryland.
As the result of an audit of partnership tax returns, the taxpayer was assessed tax on interest and capital gain income derived from the partnership. The taxpayer contests this assessment on the ground that interest accrued on notes held by the partnership was taxable in South Carolina as the partnership did not hold any interests within Virginia and its notes were held outside this state. The taxpayer does not contest the portion of the assessment representing capital gain income from the sale of real estate located in Virginia and owned by the partnership.
Determination
§58-151.013(f)(1) of the Code of Virginia dictates that the Virginia taxable income of a nonresident partner shall be determined based upon the percentage of his Virginia source income to his total income. The capital gain from a sale of Virginia real estate would certainly be treated as Virginia source income; however, interest income derived from notes held in another state and distributed to a resident of another state would not be treated as Virginia source income.
Therefore, based on the foregoing, I find basis for the correction of tax assessed. This assessment will be revised to reflect my determination in regard to interest derived and distributed out-of-state.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner