Was a California resident's February 2015 amended Virginia return timely after California changed her 2010 tax liability that same month?

Subject

California's tax change reopened the Virginia amendment period

Plain-English summary

The amended Virginia return was timely even though the ordinary three-year period had expired. The taxpayer was a California resident who had filed a 2010 Virginia nonresident return. California later disallowed the credit it had given for Virginia tax, creating additional California tax.

Virginia allowed qualifying nonresidents a reciprocal credit when their residence state provided a substantially similar credit. The ruling identified California as one of the qualifying jurisdictions, and the taxpayer had filed and paid California resident tax.

The general Virginia amendment deadline expired May 2, 2014. But Va. Code § 58.1-1823(A)(v) allowed one year after another state's final tax change, limited to the Virginia decrease attributable to that change. California notified the taxpayer in February 2015, and she paid and amended Virginia that same month.

Result: Virginia had to process the amendment as timely and issue a refund if the recalculation produced an overpayment.

What this means for you

• Another state's final adjustment can create a special Virginia amendment window after the normal deadline.
• File quickly and retain the other state's notice and proof of payment.
• The Virginia refund cannot exceed the decrease attributable to the other-state change.
• Eligibility for the nonresident credit depends on the residence state's reciprocal treatment.

Common questions

Q: Why did the ordinary deadline not control?

A: A statutory exception allowed one year after another state's final change.

Q: How quickly did the taxpayer file?

A: In the same month California made the change and she paid the added tax.

Q: Was a refund guaranteed?

A: No. Virginia would issue one only if processing the amendment produced an overpayment.

Citations and references

• Va. Code § 58.1-332(B).
• Va. Code § 58.1-1823(A)(v).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-226

Original ruling text

December 8, 2015

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which * (the "Taxpayer") requests a refund of individual income tax for the taxable year ended December 31, 2010.

FACTS

The Taxpayer, a California resident, filed a Virginia nonresident individual income tax return for the 2010 taxable year. In February 2015, California disallowed the credit she claimed on her 2010 California return for the income tax paid to Virginia. The Taxpayer paid the additional tax due and filed an amended Virginia return to claim credit for income tax paid to California. The Department processed the return but denied the refund because the return was not filed within the statute of limitations. The Taxpayer filed an appeal, contending the return was timely filed because it was filed within one year of the change to her California tax liability.

DETERMINATION

Out-of-State Tax Credit

Under Va. Code § 58.1-332 B, a nonresident is permitted to claim a credit against tax on income from Virginia sources when their state of residency provides a substantially similar credit to Virginia residents or imposes a tax upon their income derived from Virginia sources but does not tax income earned in the state by Virginia residents. Because it is dependent on another state granting a similar or reciprocal credit, it may be limited by the credit permitted by the other state. Currently, only residents of Arizona, California, Oregon, and the District of Columbia may qualify for this credit. The Taxpayer was eligible to claim the credit on her nonresident Virginia return because she filed a resident return with, and paid tax to, California.

Statute of Limitations

Generally, Va. Code § 58.1-1823 allows a taxpayer to file an amended return within three years from the last day prescribed by law for the timely filing of the return. The Taxpayer's 2010 return was due May 2, 2011 (May 1 was a Sunday). In order to have timely filed an amended return, the Taxpayer would have to have filed on or before May 2, 2014. In this case, the Taxpayer's 2010 amended return was filed in February 2015, well after the general statute of limitations had expired. Virginia Code § 58.1-­1823, however, also includes a number of exceptions to the general rule when specific circumstances are present.

Under Va. Code § 58.1-1823 A (v), a taxpayer has one year from the final determination of a change made by any other state to file an amended return to request a refund, provided that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change. In February 2015, California notified the Taxpayer of the correction to her California return, and she paid the assessment. The same month, she filed her amended Virginia return. Therefore, the amended return was timely filed under Va. Code § 58.1-1823 A (v).

Accordingly, the amended return will be processed as timely filed and the liability adjusted accordingly. If an overpayment results, a refund will be issued.

The Code of Virginia sections 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/1-6121367925.M