Could a Virginia resident claim an out-of-state tax credit for income tax a partnership paid on his behalf through another state's unified return?

Plain-English summary

Virginia allowed a resident's credit for income tax that a partnership paid to another state on his behalf through a unified return.

For that type of credit, the taxpayer needed a statement verifying two amounts: his pro rata share of the unified return's taxable income and his pro rata share of the other state's tax paid by the partnership. The statement submitted with the appeal contained both figures.

The Department revised the assessment to apply the credit and issued an updated bill for the remaining balance.

Common questions

What income can support Virginia's other-state credit? The cited rule covers qualifying earned or business income taxed by another state.

What documentation mattered for the unified return? The taxpayer's share of taxable income and his share of tax paid on his behalf.

Did the credit erase the entire assessment? The ruling says an updated balance remained payable.

Citations and references

• Va. Code § 58.1-332 A
• P.D. 07-207 (December 5, 2007)

Subject

Out of state tax credits

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-64

Original ruling text

May 10, 2017

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * (the “Taxpayer”) for the taxable year ended December 31, 2013.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia individual income tax return for the 2013 taxable year. A review of the Department's records showed that the Taxpayer had not filed a return. The Department requested additional information from the Taxpayer to determine if his income was subject to Virginia individual income tax. In response, the Taxpayer filed a return, claiming a credit for income tax paid to * (State A) on his behalf by a partnership (the “Partnership”). The Department denied the credit and made additional adjustments to the return. As a result, an assessment was issued. The Taxpayer appealed, contending the credit should be allowed to offset a portion of the tax due on the assessment.

DETERMINATION

Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia return for income taxes paid to another state provided the income is either earned or business income. A taxpayer claiming the out-of-state tax credit for income taxes paid to another state on a unified return must attach a statement to his return verifying: (1) the taxpayer's pro rata portion of the unified return's taxable income, and (2) the taxpayer's pro rata portion of the tax paid to the applicable state by the partnership on the individual's behalf. See Public Document (P.D.) 07-207 (12/5/2007).

The statement the Taxpayer provided with his appeal lists his pro rata portion of taxable income from the Partnership that was attributable to State A and the amount of tax that was paid to State A on his behalf. As such, the statement conforms to the requirements of P.D. 07-207.

The assessment will be revised to allow a credit for income tax paid to State A and an updated bill will be issued to the Taxpayer. The Taxpayer should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collections actions.

The Code of Virginia sections and public document 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/1097.M