Tax Type
Individual Income Tax
Description
Taxes paid by residents to other states
Topic
Credits
Date Issued
03-31-1986
March 31, 1986
Re: Request for Ruling/Individual Income Tax
Dear ****************
This will reply to your letter of March 10, 1986, in which you submit a request for a ruling as to the applicability of the credit for taxes paid to another state to a Virginia resident who has paid income taxes to North Carolina.
Section 58.1-322 of the Code of Virginia provides that "[w]henever a resident of the Commonwealth has become liable for income tax to another state, on earned or business income, or any part thereof, for the taxable year, derived from sources without the Commonwealth and subject to taxation tin Virginia)...the amount of income tax payable by him shall...be credited on his return with the income tax so paid by him to such other state." Emphasis added
As noted in Section 630-2-332 of the Virginia Individual Income Tax Regulations, "[o]nly an income tax paid to another state on earned or business income from sources outside Virginia qualifies for the credit" under the above statute. For purposes of the credit, Regulation Section 630-2-332 defines both the term "earned income" and the term "business income.
The term "earned income" is defined by the regulation as:
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- wages, salaries, or professional fees and other amounts received as compensation for professional services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered.
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- Earned income does not include interest or dividend income, capital gains, income from investments, or similar types of passive income.
- Earned income does not include interest or dividend income, capital gains, income from investments, or similar types of passive income.
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- income derived from an activity which constitutes a "business" for federal income tax purposes for which a federal Schedule C, E, or F must be filed, for example, a sole proprietorship, provided that if the business incurred a loss such loss would be allowable under federal law. Thus income from hobbies and other activities not engaged in primarily for profit is not business income even though a Schedule C, E, or F may be filed for such activities.
- income derived from an activity which constitutes a "business" for federal income tax purposes for which a federal Schedule C, E, or F must be filed, for example, a sole proprietorship, provided that if the business incurred a loss such loss would be allowable under federal law. Thus income from hobbies and other activities not engaged in primarily for profit is not business income even though a Schedule C, E, or F may be filed for such activities.
I have enclosed a copy of the Virginia Individual Income Tax Regulations for use by your firm. If you have any further questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner