Bulletin Number
VTB 87-13
Tax Type
Corporation Income Tax
Fiduciary Income Tax
Individual Income Tax
Description
Interest Derived from Ginnie Maes
Topic
Computation of Income
Computation of Tax
Exemptions
Date Issued
11-17-1987
The purpose of this tax bulletin is to clarify the department's policy with respect to the taxability of interest earned on obligations of the Government National Mortgage Association (GNMA), which are popularly known as "Ginnie Maes.'
The GNMA was created by Congress in 1968 to perform certain functions in the secondary mortgage market. It is a wholly owned government corporation within the Department of Housing and Urban Development. In order to attract investors into the mortgage market, the GNMA minimizes the risk of loss by guaranteeing qualifying certificates issued by private financial institutions. This guarantee by the GNMA pledges the full faith and credit of the United States to secure the timely payment of the interest and principal set forth in the instrument.
The United States Supreme Court, on June 8, 1987, ruled in Rockford Life Insurance Company v. Illinois Department of Revenue et al. (No. 86-251), that instruments guaranteed by the GNMA and commonly known as "Ginnie Maes' are not exempt from state taxation under the provisions of 31 U.S.C. § 3124 (a) (Rev. Stat. § 3701, 31 U.S.C. § 742 prior to the 1982 reformulation of the statute).
In computing Virginia taxable income, both Virginia Code §§ 58.1-322 C.1. (applicable to individuals) and 58.1-402 C. 1. (applicable to corporations) provide a subtraction for:
- 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. (Emphasis added.)
Interest derived from GNMA investments, will be subject to Virginia income tax for taxable years beginning on and after January 1, 1987.
Tax Bulletins