How should someone who moved from Maryland to Virginia in November 2009 file, and could he claim credit for Maryland wage tax?

Subject

November mover had to file Virginia part-year return

Plain-English summary

Virginia found that the taxpayer became domiciled in Virginia in November 2009 and should file Form 760PY as a part-year resident. He had originally filed as a full-year resident and claimed a credit for Maryland income tax.

Virginia-Maryland reciprocity exempted Virginia residents' Maryland wages from Maryland income tax. A Virginia resident with Maryland wage withholding generally sought a refund from Maryland rather than a Virginia other-state credit.

But the taxpayer was not a Virginia resident for all of 2009. The part-year return would report income received during the Virginia-resident period and prorate personal exemptions and the standard deduction. Virginia would process that return and adjust the assessment accordingly.

What this means for you

• File Form 760PY when Virginia residency begins during the year.
• Do not claim a Virginia credit for wage tax that another state must refund under reciprocity.
• Report and prorate items based on the actual Virginia-resident period.
• A replacement return can adjust an assessment that was based on the wrong residency status.

Citations and references

• Va. Code §§ 58.1-302, 58.1-303, 58.1-332 A, and 58.1-342 B.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-67

Original ruling text

May 20, 2014

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the Department's adjustments made to the Virginia individual income tax return filed by * (the "Taxpayer") for the taxable year ended December 31, 2009. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer filed a Virginia resident individual income tax return claiming a tax credit for income tax paid to other states. Under review, the Department disallowed the tax credit claimed for Maryland because a reciprocal agreement prohibits Maryland from imposing income tax on certain income received by Virginia residents. The Department issued an assessment for additional tax and interest. The Taxpayer appeals the assessment, contending he did not move into Virginia until November 2009.

DETERMINATION

Reciprocity

Virginia Code § 58.1-342 B grants the Department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income tax when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. In addition, employers are not required to withhold Virginia income tax from residents of these states. Virginia currently has this type of agreement with Maryland, West Virginia and Pennsylvania.

Virginia's reciprocity agreement with Maryland permits Virginia residents commuting daily to Maryland to have taxes withheld and paid to Virginia only. If a Virginia resident has Maryland income tax withheld from wages earned while commuting to work in Maryland, he should file an income tax return with that state in order to receive a refund.

In this case, the Taxpayer filed a return as if he were a full year resident of Virginia during 2009, and his only income from Maryland was wages. Based on the manner in which he filed the return, the Taxpayer was considered to be a nonresident of Maryland during 2009 and exempt from income taxation by Maryland under the reciprocal agreement.

Out-of-State Tax Credit

Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia individual income tax return for income taxes paid to another state provided the income is either earned or business income or gain on the sale of a capital asset. Virginia law does not necessarily allow a taxpayer to claim a credit for the total amount of tax paid to another state. Rather, the credit is limited to the lesser of the amount of tax actually paid to the other state or the amount of Virginia income tax actually imposed on the taxpayer on the income earned or derived in the other state. See Public Document (P.D.) 97-301 (7/7/1997). Because the Taxpayer filed a Virginia income tax return as a resident, the Department concluded he was not subject to income tax in Maryland and was not eligible for an out-of-state tax credit on his 2009 Virginia return.

Residency

Virginia Code § 58.1-302 sets forth two classes of residents, a domiciliary resident and an actual resident. The domiciliary residence of a person means the permanent place of residence of a taxpayer and the place to which he intends to return even though he may reside elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon his Virginia domicile with no intention of returning to Virginia. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia.

The Taxpayer attests that he moved into Virginia during 2009. Prior to relocating to Virginia, the Taxpayer resided in Maryland and another state for portions of the 2009 taxable year. Based on the evidence, the Taxpayer changed his domiciliary residence to Virginia in November 2009. Under such circumstances, the Taxpayer was not a resident of Virginia for the entire 2009 taxable year.

Part-Year Residents

Virginia Code § 58.1-303 provides that a taxpayer who becomes a resident of another state during the taxable year is subject to taxation for the period in which he was a Virginia resident. Accordingly, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. In addition, part-year residents may claim a portion of their Virginia personal exemptions, but the exemptions will be prorated based upon the number of days that the taxpayer was a Virginia resident. Further, part-year residents may claim a prorated Virginia standard deduction if they claim the standard deduction for federal income tax purposes.

Because the Taxpayer changed his domiciliary residence to Virginia in November 2009, he would be considered to be a part-year resident under Virginia law. Instead of filing a Virginia resident return (Form 760), an individual who moved into Virginia during a taxable year would file a part-year return (Form 760PY). As such, the Taxpayer should file a 2009 Form 760PY and report only the income he received while residing in Virginia.

The requested return should be filed within 30 days of the date of this letter and mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings,

P.O. Box 27203, Richmond, Virginia 23216-7203, Attention: *. Once the return is received, it will be processed and the assessment will be adjusted accordingly. If such return is not filed within the allotted time, the assessment will be considered to be correct and collection action will resume.

The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5265382850.D