Tax Type
Individual Income Tax
Description
Retirement income; Part-year return for 1998; Residency
Topic
Residency
Taxpayers
Date Issued
08-15-1991
August 15, 1991
Re: §58.1-1821 Application: Individual Income Tax
Dear*****************
This will reply to your letter of October 6, 1990, in which you request correction of the income tax assessed by the Department based upon your 1989 income tax return, and in which you request information regarding retroactive refunds to federal retirees pursuant to the U. S. Supreme Court case of Davis v. Michigan.
FACTS
You were a resident of Virginia from January 1, 1989 through October 30, 1989. The part-year resident return that you filed for that period was adjusted by the Department to correct the retirement income subtraction which you claimed. Consequently, the standard deduction was also adjusted, as the percentage of income from Virginia sources was changed.
You protest the adjustment of your retirement income subtraction on the basis of your opinion that only the retirement income that you received while a Virginia resident should be subjected to the subtraction phaseout limitations.
DETERMINATION
The retirement income subtraction effective for taxable year 1989 has been repealed and replaced by a new income subtraction for all elderly taxpayers, effective for taxable years beginning on and after January 1, 1990.
For taxable year 1989, a part-year resident was able to claim a subtraction for income received in another state (including retirement income) independent of, and in addition to, the retirement income subtraction. If a part-year resident also received retirement income while a resident of Virginia, then the part-year resident also qualified for the retirement income subtraction. Taxpayers with more than $16,000 in retirement income included in federal adjusted gross income (FAGI) were required to reduce the subtraction amount by $1 for each $3 of total retirement income included in FAGI in excess of $16,000. The resulting amount was then multiplied by 50% and subjected to the limitations imposed upon part-year residents.
For a part-year resident, all retirement income included in FAGI which was received during 1989 was counted to arrive at the $16,000 annual retirement income ceiling, regardless of the taxpayer's residence when received. However, the Virginia subtraction amount was not to exceed that portion of the taxpayer's retirement income received while a resident of Virginia, if less than the amount computed. The purpose of this limitation (which was clearly set forth in the instructions to Form 760-PY for 1989) was to prevent a part-year resident from receiving the double benefit of subtracting retirement income received while not a Virginia resident, as well as subtracting this same income as income earned in the other state.
Based upon the foregoing, I find that the assessment of tax by the department is correct, and therefore, no adjustment will be made.
The federal pension issue is presently in litigation. Until a final judicial order not subject to further appeal is entered, the Department of Taxation will not issue refunds. At this point, the issue is pending before the Virginia Supreme Court.
Should the courts ultimately determine that refunds are due, federal pensioners have one year from the date of the entry of the final judicial order to seek refunds as provided in Va. Code §58.1-1823. Therefore, requests for refunds need not be filed at this time.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner