Tax Type
Individual Income Tax
Partnerships
Description
Out-of-state tax credit; Partnership payments to North Carolina
Topic
Credits
Partnerships
Date Issued
05-11-1990
May 11, 1990
Re: Request for Ruling: Individual Income Tax
Dear***********************
This will reply to your letter of March 27, 1990, in which you wish to determine the proper procedure for claiming credits for income tax paid to North Carolina.
FACTS
Beginning in 1989, North Carolina requires partnerships to make payments of the individual income tax on behalf of nonresident partners who receive partnership income from North Carolina sources.
As some nonresident partners may not choose to file an individual income tax return with North Carolina, you wish to determine whether a credit may be claimed under Va. Code §58.1-332 based on the tax paid to North Carolina by the partnership on behalf of the partner.
RULING
Va. Code §58.1-332 provides a credit to resident individuals who have "become liable for income tax to another state, on earned or business income, or any part thereof, for the taxable year." The credit is allowed under the statute only upon proof of payment of the tax paid to the other state.
As such, an individual claiming the credit must have become "liable" for tax in another state and must have actually paid the tax.
North Carolina Code §105-154 (b) requires partnerships which have nonresident partners to report their earnings in the state and the distributive share of the income of each nonresident partner. The statute further requires that the partnership "shall pay the tax as levied on individuals ... for each nonresident partner" and that the partnership "may deduct the payment for each nonresident ... partner from the ... partner's distributive share of the profits" of the partnership.
In addition, the North Carolina Department of Revenue has published guidelines providing:
-
- A nonresident partner is not required to file a North Carolina individual income tax return when the only income from North Carolina sources is the nonresident's share of income from a partnership doing business in North Carolina and the manager of the partnership has reported the income of the nonresident partners and paid the tax due. A nonresident partner may file an individual income tax return and claim credit for the tax paid-by the manager of the partnership if the payment is properly identified on the individual income tax return.
- A nonresident partner is not required to file a North Carolina individual income tax return when the only income from North Carolina sources is the nonresident's share of income from a partnership doing business in North Carolina and the manager of the partnership has reported the income of the nonresident partners and paid the tax due. A nonresident partner may file an individual income tax return and claim credit for the tax paid-by the manager of the partnership if the payment is properly identified on the individual income tax return.
A partner who does not file a North Carolina individual income tax return may base his Virginia credit on the tax paid on his behalf by the partnership. However, a partner who files a North Carolina return must use his actual North Carolina tax liability in computing his Virginia credit.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner