Tax Type
Fiduciary Income Tax
Description
Income from Out-of-State Sources; Credits
Topic
Estates and Trusts
Date Issued
08-23-1991
August 23, 1991
Re: §58.1-1821 Application: Individual Income Tax
Dear*****************
This will reply to your letters of April 26, 1990 and July 11, 1990 in which you request a ruling on the Virginia income tax liabilities and income tax return filing requirements of********(the "Taxpayer") for the years 1988 and 1989. Because assessments have been issued by the Department of Taxation for both of these years, your request for a ruling will also be treated as an appeal under Va. Code §58.1 - 1821.
FACTS
The taxpayer. a resident of North Carolina, is the sole beneficiary of two trusts which were originally created by Virginia residents. All assets of both trusts are held in North Carolina. The assets of the trusts are comprised of stocks, bonds. and interests in a North Carolina real estate development limited partnership. In early 1989, the trusts' stocks and bonds were transferred into a North Carolina limited investment partnership.
Beginning in 1989, as required by North Carolina law. the limited partnership makes payments of the individual income tax on behalf of the trusts. as nonresident partners who receive partnership income from North Carolina sources.
The taxpayer requests a ruling on the Virginia income tax return filing requirements and the allowance or disallowance of a credit against the Virginia income tax, if applicable, for taxes assessed and paid to North Carolina upon the same income.
DISCUSSION
Fiduciary Requirements
Pursuant to Va. Code §58.1 -381, every resident estate or trust required to file a federal income tax return for the taxable year must also file a Virginia fiduciary income tax return. Va. Code §58.1-302 provides the definition of a Virginia resident estate or trust, which includes "[a] trust created by will of a decedent who at his death was domiciled in the Commonwealth. Accordingly, the two trusts in question are subject to the Virginia fiduciary income tax as Virginia resident trusts.
Both resident trusts are required to file Virginia fiduciary income tax returns annually. However, they are entitled to claim a credit pursuant to Va. Code §58.1-371 for income taxes paid to other states. Because the fiduciary is not located in Virginia and none of the current income is from Virginia sources. a credit will be allowed for all income taxes paid to North Carolina by the trusts. For purposes of the credit. any tax paid by the partnership on behalf of the trust shall be deemed to have been paid by the trust to the extent that it is not attributable to distributable net income.
Individual Requirements
Va. Code §58.1-325 defines the Virginia taxable income of a nonresident individual. The nonresident's total income, computed as if he were a Virginia resident, is multiplied by the ratio of his net income, gain, loss and deductions from Virginia sources to his net income, gain, loss and deduction from all sources to arrive at his Virginia taxable income.
The income generated by the trusts does not meet the definition of "income from Virginia sources", which is found in Va. Code §58.1-302; therefore, the taxpayer is not subject to the Virginia individual income tax filing requirements for nonresidents .
RULING
Virginia resident fiduciary returns were filed for taxable years 1988 and 1989. claiming the credit, when applicable, for taxes paid to North Carolina on the trust income. which is derived from North Carolina sources. This, in compliance with the Virginia income tax statutes, is the correct procedure.
The taxpayer has also filed Virginia nonresident individual income tax returns for 1988 and 1989. The 1988 return, but not the 1989 return, indicated a Virginia income tax liability, against which the taxpayer applied the credit for taxes paid to North Carolina. The department disallowed the credit and has assessed tax in the amount of ************* related to the 1988 return. Because the taxpayer had no individual income tax return filing requirement for these years, based upon the facts which are presented herein, the 1988 assessment, which is still outstanding, will be abated.
I hope that the foregoing has responded to your inquiries. If you need any additional information, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner