Tax Type
Individual Income Tax
Partnerships
Description
Unified nonresident individual income tax return; Nonresident partners
Topic
Partnerships
Returns/Payments/Records
Date Issued
04-24-1989
April 24, 1989
Re: Ruling Request
Unified Return Filing
Dear ****
This is in reply to your letter dated December 22, 1988, in which you request permission on behalf of your client, ************* to file a unified nonresident individual income tax return.
FACTS
************** (Taxpayer), a partnership formed under the laws of Georgia, is an interstate common carrier engaged in the delivery of vehicles from assembly plants to dealerships. Taxpayer has five partners - three S corporations and two partnerships. All of the S corporation partners have individual shareholders as partners. one of the partnership partners has twenty complex trusts as partners. The other partnership partner has an S corporation and an individual as partners. This S corporation's sole shareholder is an individual. All of the partnerships, S corporations and individuals are either Georgia residents or entities formed under the laws of Georgia.
You request permission for the Taxpayer to file a unified Virginia nonresident individual income tax return on behalf of all of its partners, thus relieving the partners of the responsibility of having to file separate Virginia returns.
DISCUSSION
Partnership filing requirements:
Virginia generally conforms to the federal treatment of partnerships. A partnership as such, is not subject to income tax. Any income tax arising from the income of the partnership is the liability of the partners. The 1988 Session of the Virginia General Assembly enacted legislation (Chapter 249, 1988 Acts of Assembly) which repealed the partnership return filing requirements set forth in Virginia Code §58.1-392. This change is effective for taxable years beginning on or after January 1, 1987. The repeal of the partnership return filing requirement does not relieve resident or nonresident partners with partnership income from Virginia sources from the filing of Virginia income tax returns.
Computation of Virginia Income:
The Virginia Taxation of Partnerships Regulations (copy enclosed) require that partnerships which have income from business both within and without Virginia compute their Virginia source income in accordance with the corporate statutory formula set forth in Virginia Code §§58.1-408 through 58.1-421 (copies enclosed), making such changes as necessary after considering the differences between corporations and partnerships. Therefore, such partnerships generally must allocate dividends to the state of commercial domicile and apportion all other income. In the case of the Taxpayer, income would be apportioned using the ratio of vehicle miles in Virginia to total vehicle miles everywhere. (Virginia Code §58.1-417)
Under federal law, "[t]he character of any item of income, gain, loss, deduction, or credit included in a partner's distributive share ... shall be determined as if such item were realized directly from the source from which realized by the partnership or incurred in the same manner as incurred by the partnership." [IRC §702(b).] In addition, each item of partnership income, gain, loss or deduction has the same character for a partner for Virginia income tax purposes as for federal income tax purposes. (Virginia Code §58.1-391 B.) There is no limitation imposed under either federal law or Virginia law regarding the number of tiers of partnerships that may exist. Therefore, the pass through of Virginia source income will continue to occur from partnership to partner until the income is passed through to a partner or shareholder which is a taxable entity.
RULING
Section 630-4-391(C)(2) of the Virginia Taxation of Partnerships Regulations provides that the Tax Commissioner may grant permission to nonresident partnerships to file a statement of combined partnership income attributable to nonresident partners. This relieves the nonresident partners of the responsibility of having to file nonresident individual income tax returns.
None of the partners of the Taxpayer are taxable entities. In fact, two of the partners (the partnerships) are not required to file a Virginia return. The first taxable entities in the previously described structure are the partners or shareholders of the Taxpayer's partners. In the case of two of the partnership partners, their partners may not even be taxable entities. Therefore, in order to maximize the benefits of a unified filing, the Taxpayer will be granted permission to file a unified return which includes all taxable entities receiving Virginia source income derived from the Taxpayer.
In order for the department to accept a unified nonresident individual income tax return and thus relieve the nonresident taxable entities of the responsibility of having to file separate Virginia returns, the following conditions must be met:
1. A schedule must be provided containing the total income of the Taxpayer and the amount attributable to Virginia under either the applicable state apportionment formula, as provided in Virginia Code §58.1-417. As required by Virginia Code §58.1-407, only dividends may be allocated to the state of commercial domicile.
2. The unified return must reflect only the income or loss attributable to the nonresident taxable entities that have no income from Virginia sources other than income attributable to the Taxpayer.
3. All nonresident taxable entities without other income from Virginia sources must elect to join in the filing of such a return and a statement to such effect will be included in the return.
4. The return will include a schedule containing the name, address, federal employer identification number or social security number and Virginia taxable income attributable to each entity (taxable or nontaxable) receiving Virginia source income from the Taxpayer.
5. The Virginia income tax will be computed at the rates specified under Virginia Code §58.1-320 without benefit of itemized deductions, standard deductions, personal exemptions or credit for income taxes paid to states of residence.
6. The return will contain a statement indicating the responsibility of each nonresident entity for his share of the total tax and any statements made on his behalf. The statement will be signed by each such entity.
7. A similar unified return will be filed and payment made for the declaration of estimated tax, if required.
If the above is acceptable, the Taxpayer may commence the unified filing under the above conditions effective for taxable year 1988. However, we reserve the right to withdraw or modify the foregoing authorization upon reasonable notice to you.
If the above is not acceptable, please note that each nonresident taxable entity having taxable income for a taxable year must file a Virginia return, unless such entity meets the filing exceptions described in Virginia Code §58.1-321. Failure to file a nonresident return would subject the entity to penalty and interest, which could not be mitigated by the fact that a unified filing had been made unless the unified filing was in accordance with the conditions set forth above.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner