Tax Type
Individual Income Tax
Description
Taxation of part-year residents; IRA and pension distributions
Topic
Taxpayers' Remedies
Date Issued
06-30-1999
June 30, 1999
Re: Request for a Ruling: Individual Income Tax
Dear***
This will reply to your letter in which you request a ruling on pension and Individual Retirement Account (IRA) distributions to nonresident taxpayers. I apologize for the delay in responding.
FACTS
A Virginia taxpayer receives quarterly distributions from a pension fund and an IRA. In May of a given calendar year, the taxpayer moves from Virginia and established domicile in another state (State A), which does not impose an income tax. In March of the same year, the taxpayer made an additional withdrawal from the IRA in addition to the usual quarterly distribution. The taxpayer also received normal quarterly distributions during the taxable year.
You inquire as to the treatment of these IRA distributions for Virginia individual income tax purposes. In addition, you have several questions concerning the taxability of IRA distributions in Virginia.
RULING
1. Would Virginia tax these distributions as Virginia income on the dates received or prorate the total benefits received based on days in Virginia during the year?
Public Document (P.D.) 95-117 (5/15/95), copy enclosed, provides that income attributable to Virginia is that which is received during the period of the year in which the individual is a Virginia resident. IRA and pension distributions, including withdrawals which exceed the normal distribution, received by an individual while he is a Virginia resident are attributable to Virginia as Virginia source income in the year which such distributions are received. Virginia law does not allow the prorating the total benefits based on days of Virginia residency.
2. Would treatment be different if the taxpayer arranged to take the pension semi-annually (June 1 and December 1) and did not withdraw any funds until his change in domicile?
Assuming a change in domicile occurred in May, the taxpayer would not receive a distribution until after his change in domicile. Income attributable to Virginia is that which is received during the period of the year in which the individual is a Virginia resident. Therefore, if the taxpayer delayed the distribution until after he moved to the other state, he would not be subject to Virginia tax on the distributions.
In addition, Sec. 114 of Title 4 of the United States Code, copy enclosed, prohibits states from imposing an income tax on any retirement income of an individual who is not a resident or domiciliary of such state. Provided the taxpayer changed domicile in May, Virginia could not tax distributions which occurred after the domicile change.
3. If the taxpayer withdrew $200,000 while still a Virginia resident, to purchase a new home and furnishings in State A, would the $200,000 be 100% taxable to Virginia?
For the same reasons stated in the answer to the first question, the $200,000 would be fully taxable in Virginia if the taxpayer did not effectively change domicile until May after receiving the $200,000.
4. If the withdrawal was made after the change in domicile, would any portion be taxed to Virginia?
For the reasons stated in the answer to your second question, none of the $200,000 would be taxable in Virginia provided that taxpayer effectively changed domicile before the withdrawal.
5. Would Virginia tax treatment vary if the taxpayer moved to a state with an income tax?
The tax treatment of the distributions will not change if the taxpayer moved to a state with an income tax.
I trust that this ruling answers your questions. If you have any other questions, you may contact * * * * * at * * * * *.
Re: Request for a Ruling: Individual Income Tax
Dear***
This will reply to your letter in which you request a ruling on pension and Individual Retirement Account (IRA) distributions to nonresident taxpayers. I apologize for the delay in responding.
FACTS
A Virginia taxpayer receives quarterly distributions from a pension fund and an IRA. In May of a given calendar year, the taxpayer moves from Virginia and established domicile in another state (State A), which does not impose an income tax. In March of the same year, the taxpayer made an additional withdrawal from the IRA in addition to the usual quarterly distribution. The taxpayer also received normal quarterly distributions during the taxable year.
You inquire as to the treatment of these IRA distributions for Virginia individual income tax purposes. In addition, you have several questions concerning the taxability of IRA distributions in Virginia.
RULING
1. Would Virginia tax these distributions as Virginia income on the dates received or prorate the total benefits received based on days in Virginia during the year?
-
- Code of Virginia Sec. 58.1-303 (B), copy enclosed, states that:
-
- Any person who, on or before the last day of the taxable year, changes his place of abode to a place without the Commonwealth with the bona fide intention of continuing actually to abide permanently without Virginia shall be taxable as a resident for only that portion of the taxable year during which he was a resident of Virginia. . .
Public Document (P.D.) 95-117 (5/15/95), copy enclosed, provides that income attributable to Virginia is that which is received during the period of the year in which the individual is a Virginia resident. IRA and pension distributions, including withdrawals which exceed the normal distribution, received by an individual while he is a Virginia resident are attributable to Virginia as Virginia source income in the year which such distributions are received. Virginia law does not allow the prorating the total benefits based on days of Virginia residency.
2. Would treatment be different if the taxpayer arranged to take the pension semi-annually (June 1 and December 1) and did not withdraw any funds until his change in domicile?
Assuming a change in domicile occurred in May, the taxpayer would not receive a distribution until after his change in domicile. Income attributable to Virginia is that which is received during the period of the year in which the individual is a Virginia resident. Therefore, if the taxpayer delayed the distribution until after he moved to the other state, he would not be subject to Virginia tax on the distributions.
In addition, Sec. 114 of Title 4 of the United States Code, copy enclosed, prohibits states from imposing an income tax on any retirement income of an individual who is not a resident or domiciliary of such state. Provided the taxpayer changed domicile in May, Virginia could not tax distributions which occurred after the domicile change.
3. If the taxpayer withdrew $200,000 while still a Virginia resident, to purchase a new home and furnishings in State A, would the $200,000 be 100% taxable to Virginia?
For the same reasons stated in the answer to the first question, the $200,000 would be fully taxable in Virginia if the taxpayer did not effectively change domicile until May after receiving the $200,000.
4. If the withdrawal was made after the change in domicile, would any portion be taxed to Virginia?
For the reasons stated in the answer to your second question, none of the $200,000 would be taxable in Virginia provided that taxpayer effectively changed domicile before the withdrawal.
5. Would Virginia tax treatment vary if the taxpayer moved to a state with an income tax?
The tax treatment of the distributions will not change if the taxpayer moved to a state with an income tax.
I trust that this ruling answers your questions. If you have any other questions, you may contact * * * * * at * * * * *.
Rulings of the Tax Commissioner