Tax Type
Individual Income Tax
Description
Taxes Paid by Residents to Other States
Topic
Credits
Date Issued
02-24-1997
February 24, 1997
Re: § 58.1-1821 Application: Individual Income Tax
Dear*************
This will reply to your letter in which you seek the correction of individual income tax assessments against you and your wife (the "Taxpayers") for the taxable years 1993 and 1994. I apologize for the delay in responding.
FACTS
The Taxpayers are domiciliary residents of Virginia. During tax years 1993 and 1994, the husband worked in California and received wage income. Because he resided in California for nine months during each year, the husband was considered an actual resident of that state. The Taxpayers filed joint Virginia returns and claimed a credit for taxes paid to California on the husband's wage income.
The Taxpayers' returns were subject to an office audit by the department, and the tax credits were disallowed and assessments issued. The Taxpayers contend the credits were properly claimed, and request that the assessments be abated.
DETERMINATION
Code of Virginia § 58.1-332(A), copy enclosed, allows Virginia residents a credit on their Virginia return for income taxes paid to another state provided the income is either earned or business income. Further, this code section states:
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- The credit . . . 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 . . . this section."
As a general rule, Virginia law does not allow a resident to claim a credit on his Virginia return for taxes paid to California because California law allows a Virginia resident to claim the credit on his California nonresident return. (Similarly, a California resident would claim the credit for tax paid to California on his Virginia nonresident return.)
In this particular case, however, the husband was considered a resident of both states. Because of the length of time spent in California and the continuity of employment, the husband was subject to tax as an actual resident of California. At the same time, however, he maintained his Virginia domicile. At issue here is which state should allow the out-of-state credit when a taxpayer possesses dual residency.
The department has previously issued a ruling which is relevant to the case at hand. See Public Document ("P.D.") 94-355 (11/23/94), copy enclosed. In this ruling, the department determined that when a reciprocity state does not allow a credit on a consolidated nonresident return, the shareholders would claim the credit on their individual Virginia returns.
In the instant case, California law does not permit the Taxpayer to claim a credit for taxes paid to Virginia because of his actual residency status. Conversely, Virginia law does not prohibit the credit. The credit, therefore, would be allowed on the Taxpayers' Virginia return.
The department has previously ruled on the method used to compute the credit for a state which determines its income tax in a manner similar to that used by California. See P.D. 95-96 (5/1/95), copy enclosed, dealing with New York taxes. The Taxpayers' credit for income tax paid to California has been recomputed in accordance with the department's written policy.
Accordingly, your request for relief is granted. Enclosed is a schedule showing the corrected computation of your 1993 and 1994 Virginia tax liability. The calculations take into consideration the filing status elected on your California and Virginia returns. In addition, the credit for 1994 estimated payments has been corrected. The revised balance due should be paid in full within 30 days to avoid the accrual of additional interest. Please forward your payment to the attention of *********, Virginia Department of Taxation, Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880. Should you have additional questions regarding this matter, please contact her at **********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11456M
Rulings of the Tax Commissioner