Tax Type
Individual Income Tax
Description
Out-of-state tax credit; New Hampshire "Business Profits Tax"
Topic
Credits
Date Issued
12-20-1989
December 20, 1989
Re: §58.1-1821 Application/ Individual Income Tax
Dear*****************
This will reply to your letter of August 8, 1989, and prior correspondence in which you seek relief of income tax assessed your client, *********** (Taxpayer), for tax year 1986.
Facts
The Taxpayer claimed an out-of-state tax credit on her 1986 Virginia individual income tax return for "Business Profits Tax" paid to the state of New Hampshire. The department disallowed the claimed credit and issued an assessment on the basis that the tax paid to New Hampshire is not an income tax. The Taxpayer requests relief of the tax, asserting that the credit is allowable under §58.1-332(A) of the Code of Virginia.
Determination
§58.1-332(A) of the Code of Virginia provides:
-
- Whenever 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 under this chapter, the amount of income tax payable by him shall, upon proof of such payment, be credited on his return with the income tax so paid by him to such other state. . .The credit provided for by this section shall not be granted to a resident individual when the laws of another state, under which the income in question is subject to tax assessment, provide a credit to such resident individual substantially similar to that granted by subsection B of this section. (Emphasis added).
The out-of-state tax credit is clearly limited under the above statute to an income tax liability incurred on non-Virginia source income to another state. Virginia Code §58.1-332(A) has consistently been interpreted by the department as allowing a credit against the Virginia tax for the amount of tax paid to another state which imposes an income tax substantially similar to that of Virginia, i.e., a broad-based net income tax. Several states have laws such as New Hampshire's, that impose certain franchise taxes or other taxes using various types of income as their measure, e.g., profits from business, dividends, interest, rents and royalties. However, the department's long-standing position has been that such taxes are not broad-based net income taxes for which Virginia can allow a credit under Virginia Code §58.1-332(A).
Accordingly, the Taxpayer's application for correction of the assessment is hereby denied.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner