Tax Type
Individual Income Tax
Description
Out-of-state tax credit; F.I.C.A. taxes withheld
Topic
Credits
Date Issued
07-03-1984
July 3, 1984
Re: §58-1118 Application: Individual Income Tax
Dear ******************
This will reply to your letter of March 1, 1984, in which you petition for relief of individual income tax, penalty for the underpayment of estimated income tax and interest assessed against you for taxable year 1982.
FACTS
Your 1982 Virginia income tax return was filed reflecting a credit on line 15(d) for income tax paid another state equal to your total tax liability. Since there was no copy of the other states' tax return attached, as required, the out of state tax credit was disallowed in full. An assessment was issued for tax, penalty for the underpayment of estimated income tax and interest.
Subsequently, you contacted the department about this assessment and on January 25, 1984 provided the additional information that was requested. You sent copies of your New York and New Jersey state income tax returns and a schedule detailing how you computed the amount that you had previously claimed on line 15(d) of your Virginia return. The amount that you claimed was the amount of your state income tax withholding for New York and New Jersey. Additionally, you also included ***** of excess F.I.C.A. (Federal Insurance Contributions Act) tax as part of your claim for income tax paid to another state.
Your return was then adjusted using the additional information that you provided. A credit was allowed for the full amount of actual income tax liability that you had to the two other states. No credit was allowed for the portion of the other states' withholding that exceeded your actual tax liability to those states or for the excess F.I.C.A. tax withheld. Your subtraction from federal adjusted gross income on line 9, for the same amount of excess F.I.C.A. tax that was claimed as a credit on line 15(d), was also disallowed.
All of these changes were incorporated in the Corrected Notice of Assessment that was dated February 21, 1984. It is from this assessment that you are now seeking relief.
DETERMINATION
Since the assessment from which you are seeking relief is the result of three separate adjustments made by the department, I will address each issue separately.
Virginia taxable income is defined by Va. Code §58-151.013 as federal adjusted gross income with certain explicitly defined statutory modifications. Absent any statutory provision for the subtraction from federal adjusted gross income of excess F.I.C.A. tax, I have no choice but to deny the allowance of the subtraction for excess F.I.C.A. tax withheld.
The second issue involved in your protest is the reduction of the amount allowed as a credit for taxes paid another state. The amount of excess F.I.C.A. tax, claimed as one component of your credit for taxes paid another state, was disallowed. Va. Code §58-151.015(a) provides:
...the amount of income tax payable by him under this chapter shall be credited on his return with the income tax so paid by him to such other state upon proof of such payment....
F.I.C.A. tax does not qualify under Va. Code §58-151.015(a) as an income tax imposed by another state for two reasons. First, F.I.C.A. tax is not considered an income tax. It is a tax imposed equally on employers and employees based on the amount of wages paid. It is also imposed on self-employed individuals based on the amount of net profit from their ventures. Its purpose is to finance the payment of old-age survivors' and disability insurance benefits under the Social Security program. Secondly, it is a tax imposed by the federal government, not the government of any state. Virginia allows no credit for any tax imposed by the federal government.
Additionally, the other component of your claimed credit was based on the gross amount of income tax withheld by New York and New Jersey. Va. Code §58-151.015(a) allows a credit for, "...income tax so paid...to such other state...." Your actual tax liability and therefore, your actual tax paid, was less than the amount withheld. This is evidenced by the amounts shown on the "Refund" line of the New York and New Jersey returns. Virginia can allow no credit for state taxes that were refunded.
I find no basis to grant you the relief that you seek from individual income tax, penalty for the underpayment of estimated income tax and interest. Full payment of the liability is due. This determination will be final unless within 30 days you request a hearing to present additional substantive issues.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner