Bulletin Number
VTB 84-1
Tax Type
Corporation Income Tax
Individual Income Tax
Description
Taxation of Va Resident Shareholders of Multistate Subchapter S Corporations
Topic
Taxability of Persons and Transactions
Taxable Income
Date Issued
02-20-1984
Virginia Department of Taxation
DATE: February 20, 1984
SUBJECT: Taxation of Virginia Resident Shareholders of Multistate Subchapter S Corporations
In a decision dated October 27, 1983, the Circuit Court of the City of Roanoke in the case of Howell's Motor Freight, Inc. et al. 9 V. Virginia Department of Taxation, upheld the department's position in regard to taxation of a Virginia resident shareholder's income from a Subchapter S corporation (electing small business corporation) which conducts business in one or more states other than Virginia and is subject to corporation income taxes in such other states. The statutory time for appeal has expired.
In the decided case, plaintiffs were the corporation, a Subchapter S corporation within the meaning of § 1361 of the Internal Revenue Code; and its resident individual shareholders. The corporation had paid income taxes for tile years in issue to other states which did not recognize the Subchapter S election for corporations.
Under the requirements of Virginia law (Code § 53-151.013) 9 the department had taxed each shareholder's total share of taxable income from the Subchapter S corporation and allowed no credit against their Virginia income tax liability for income taxes paid by the corporation to other states because Virginia law (Code § 58-151.015) provides such credit only for taxes paid by the individual taxpayer.
Virginia law and the department's interpretation of such law was upheld by the court.
Tax Bulletins