Document Number
94-281
Tax Type
Individual Income Tax
Description
Subtractions from federal adjusted gross income; Interest or dividends on federal or state obligations
Topic
Subtractions and Exclusions
Taxable Income
Date Issued
09-16-1994
September 16, 1994


Re: Ruling Request; Individual Income Taxes
Tax Exempt Interest Income


Dear**********

This will reply to your request, on behalf of the**************** for an updated list of tax exempt interest income for Virginia income tax purposes.

RULING


Va. Code §58.1-322 C provides a subtraction, to the extent included in federal adjusted gross income, for:
    • 1. Interest or dividends on obligations of the United States and on obligations or securities of any authority, commission or instrumentality of the United States to the extent exempt from state income taxes under the laws of the United States including, but not limited to, stocks, bonds, treasury bills, and treasury notes, but not including interest on refunds of federal taxes, interest on equipment purchase contracts, or interest on other normal business transactions.

      2. Interest on obligations of this Commonwealth or of any political subdivision or instrumentality of this Commonwealth.
The following list has been complied by the department for use in determining the tax exempt status of certain financial instruments. It is not necessarily all inclusive, and is based on the department's analysis of the particular state or federal law involved. The list only applies to interest paid on notes, bonds and other obligations issued directly by the organizations identified thereon. The list is subject to change without notice as laws and interpretations change and evolve. The exemptions are strictly construed to include only those notes, bonds and obligations defined within the particular federal statute cited.



Issuing Organization Virginia Tax Status of Bond Issues

Armed Services Mortgage Insurance
(12 U.S.C.A. 1748b[f]) Exempt
Asian Development Bank Taxable
Banks for Cooperatives (12 U.S.C.A. 2134) Exempt
Commodity Credit Corporation (15 U.S.C.A. 713a-5) Exempt
Export-Import Bank of the United States
(12 U.S.C.A. 635d) Exempt
Farm Credit Banks (12 U.S.C.A. 2023) Exempt (2)
Federal Deposit Insurance Corporation (FDIC)
(12 U.S.C.A. 1825) Exempt
Farmers Home Administration Taxable (3)
Federal Financing Bank (12 U.S.C.A. 2288) Exempt
Federal Home Loan Bank (12 U.S.C.A. 1433) Exempt
Federal Home Loan Mortgage Corporation
(Freddie Mac) Taxable
Federal Housing Administration Exempt (3)
Federal Intermediate Credit Bank (12 U.S.C.A. 2023) Exempt
Federal Land Bank (12 U.S.C.A. 2098) Exempt
Federal Land Bank Associations (12 U.S.C.A. 2055) Exempt
Federal National Mortgage Association
(Fannie Mae) Taxable
Federal Savings and Loan Insurance Corporation
(FSLIC) (12 U.S.C.A. 1725[e]) Exempt
Financial Assistance Corporation (12 U.S.C.A. 2278b-10[b]) Exempt
Financing Corporation (FICO) (12 U.S.C.A. 1441[e][8]) Exempt
General Services Administration Taxable (3)
Government National Mortgage Association
(Ginnie Mae) Taxable
Guam, Government of Exempt (4)
Inter-American Development Bank Taxable
International Bank for Reconstruction & Development Taxable
Maritime Administration Taxable (3)
Mutual Mortgage Insurance Fund Exempt (1)
National Defense Housing Insurance (12 U.S.C.A. 1750c[d]) Exempt (1)
Production Credit Association (12 U.S.C.A 2077) Exempt
Puerto Rico, Government of Exempt (5)
Rental Housing Insurance (12 U.S.C.A. 1747[g]) Exempt (1)
Small Business Administration Taxable (3)
Samoa, American Exempt (6)
Student Loan Marketing Association (Sallie Mae)
(20 U.S.C.A. 1087-2(b)(2)) Exempt
Tennessee Valley Authority (16 U.S.C.A. 831n-4[d]) Exempt
United States Treasury Bills, Notes and Bonds
(31 U.S.C.A. 3124[a]) Exempt
United States Savings Bonds (Series E, EE, H, HH, etc.)
(31 U.S.C.A. 3124[a]) Exempt
United States Postal Service (39 U.S.C.A. 2005[d][4]) Exempt
Virgin Islands, Government of Exempt (7)
War Housing Insurance (12 U.S.C.A. 1739[d]) Exempt (1)

Mutual Funds. The department recognizes that interest or dividends on exempt U.S. or Virginia obligations received by a mutual fund and passed through to the shareholders in qualifying distributions will retain their exempt status in the hands of the mutual fund shareholders. However, as provided in VR 630-2-322, when taxable income in commingled with exempt income, all income is presumed to be taxable unless the portion of income which is exempt from Virginia income tax can be determined with reasonable certainty and substantiated. Thus, distributions from a mutual fund which invests exclusively in U.S. or Virginia obligations are generally exempt for Virginia income tax purposes.

Because of the variety and turnover of securities held, and because of the commingling of income from taxable and tax exempt investments, the department does not maintain a list of those mutual funds which are totally or partially exempt for Virginia purposes. The department will occasionally issue rulings directly to a mutual fund, approving the manner in which such fund will determine the tax exempt portion of its dividends. However, the portion of any particular year's dividends which retains its tax exempt character in the hands of any particular fund shareholder is a factual determination that can not be determined in advance.

The department's policy is to allow a Virginia subtraction to mutual fund shareholders for the tax exempt portion of their mutual fund dividends as long as such subtraction has been determined in accordance with the information provided by the fund. It is the department's understanding that the general practice in the mutual fund industry is to compute and credit dividends monthly. Accordingly, the department generally requires that funds determine the tax exempt portion of dividends on at least a monthly basis. Although the department will not automatically disallow a taxpayer's subtraction where the mutual fund has not supplied a breakdown of tax-exempt dividends on a monthly basis, the department may examine the fund's records, and where appropriate, make adjustments to the subtractions claimed by the fund's shareholders.

Virginia tax-exempt bonds. As stated above, Va. Code §58.1-322 C specifically provides a subtraction from federal adjusted gross income (to the extent included in federal adjusted gross income) for interest on obligations of Virginia or of any political subdivision of Virginia. In addition, the acts creating agencies or political subdivisions may contain an exemption from state and local taxation for interest from obligations of the agency or political subdivision. I hope that the above is helpful to the ******* and encourage you to distribute this letter freely among ********



Sincerely,



Danny M. Payne
Tax Commissioner
OTP/8448M

1. Issued pursuant to the National Housing Act. (Housing and Urban Development)
2 . See Banks for Cooperatives, Federal Land Bank and Federal Intermediate Credit, which are part of the Farm Credit System.
3 . Obligations issued by these agencies are exempt only if the full faith and credit of the United States is pledged to pay principal and interest in all events. Interest on these obligations is not exempt merely because it is guaranteed by the United States.
4 Only bonds issued by the Government of Guam or by its authority which are exempted by specific federal
statutory exemption (48 U.S.C.A §1423a) qualify for the Virginia subtraction .
5 Only bonds issued by the Government of Puerto Rico or by its authority which are exempted by specific federal statutory exemption (48 U.S.C.A. §745) qualify for the Virginia subtraction.
6 Only industrial development bonds exempted by specific federal statutory exemption (48 U.S.C.A. §1670) qualify for the Virginia subtraction.
7 Only bonds issued by the government of the Virgin Islands or any municipality thereof which are exempted by specific federal statutory exemption (48 U.S.C.A. § 1403) qualify for the Virginia subtraction.



Last Updated 08/25/2014 16:46