Can a Virginia resident obtain abatement of an individual income-tax assessment by broadly arguing that Virginia's tax system is discriminatory or regressive?

Plain-English summary

A Virginia resident filed a 2013 state income-tax return in April 2017, reported tax due, and sent no payment. The Department assessed tax, penalty, and interest. The taxpayer did not deny his residency or income; instead, he argued that Virginia's tax laws and the assessment were discriminatory, regressive, and inequitable.

The Department refused to abate the assessment. It said Virginia may tax a resident's income, the taxpayer offered no objective evidence undermining the assessment, and the Department cannot disregard the statutes enacted by the General Assembly based on broad, unsupported policy objections.

Why the assessment stood

Virginia conforms to federal income-tax terminology and starts a resident's Virginia taxable-income calculation with federal adjusted gross income (Va. Code § 58.1-301). Income included in a Virginia resident's federal adjusted gross income remains taxable unless a specific Virginia modification applies under Va. Code § 58.1-322.

Va. Code § 58.1-341 also requires a Virginia resident who must file a federal return to file a Virginia return unless an exemption in Va. Code § 58.1-321 applies. The taxpayer did not dispute that he was a resident or had income.

The ruling cited People of New York ex rel. Cohn v. Graves and Mary T. Ryan v. Commonwealth of Virginia for the established authority of a state to tax its residents' income. The taxpayer supplied no objective evidence showing that Virginia lacked that authority in his case.

The Department's limited administrative role

The taxpayer argued that the tax system maintained inequity and burdened impoverished earners while failing to pursue affluent taxpayers equitably. The Department said its authority is narrower: under the Virginia Constitution and Va. Code § 58.1-202, it administers the tax laws and assessments created by the General Assembly.

That means the Department may ensure assessments are equitably made within the statutory system, but it cannot set the statutes aside based on unsubstantiated claims that the overall policy is discriminatory. The assessment remained due and collection action continued.

What this means for you

• A policy objection is not a factual or legal refutation of an assessment. An appeal needs evidence or authority showing the assessment is wrong under applicable law.
• Virginia residents generally begin with federal adjusted gross income. A specific Virginia exemption or modification is needed to remove income from the state tax base.
• The Department cannot rewrite the tax code in an appeal. Broader objections to the design of the tax system are not grounds for an administrative abatement without a concrete legal basis.
• Unpaid self-reported tax can produce tax, penalty, and interest assessments. Filing the return without payment did not avoid collection here.

Common questions

Q: Can I defeat a Virginia income-tax assessment simply by alleging the system is discriminatory?

A: No. The Department rejected broad, unsupported claims and required a basis under the statutes and evidence applicable to the taxpayer's own assessment.

Q: Did the taxpayer dispute being a Virginia resident?

A: No. The ruling states that he did not deny Virginia residency or having income during the year at issue.

Q: What happened after the appeal?

A: Abatement was denied, the 2013 assessment remained in place, and lawful collection action continued.

Citations and references

• Va. Code § 58.1-301 — federal conformity and starting point
• Va. Code § 58.1-322 — Virginia modifications
• Va. Code §§ 58.1-321, 58.1-341 — resident filing requirement and exemptions
• Va. Code § 58.1-202(1) — Tax Commissioner's administrative duties
• Article V, § 9, Constitution of Virginia — General Assembly may prescribe agency powers and duties
• People of New York ex rel. Cohn v. Graves, 300 U.S. 308 (1937)
• Mary T. Ryan v. Commonwealth of Virginia, 169 Va. 414, 193 S.E. 534 (1937)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 19-87

Original ruling text

August 12, 2019

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 Taxpayer filed a 2013 Virginia individual income tax return in April 2017, reporting income tax due but remitting no payment. Accordingly, the Department issued an assessment of tax, penalty and interest. The Taxpayer appeals, contending that the assessment should be abated because Virginia’s tax laws are discriminatory.

DETERMINATION

Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Virginia Code § 58.1-322. A resident of Virginia includes any natural person domiciled in Virginia at any time during a taxable year or who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia.

Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Virginia Code § 58.1-321. The Taxpayer does not deny that he was a Virginia resident or that he had income during the taxable years at issue. Rather, he contends that Virginia’s income tax laws are discriminatory.

In People of State of New York ex rel. Cohn v. Graves , 300 U.S. 308, 57 S.Ct. 466 (1937), the United States Supreme Court explained “[t]hat the receipt of income by a resident of the territory of a taxing sovereignty is a taxable event is universally recognized.” See also Mary T. Ryan v. Commonwealth of Virginia , 169 Va. 414, 193 S.E. 534 (1937). Absent any objective evidence to the contrary, Virginia is well within its authority to impose its income tax on all of the income of a resident of the Commonwealth of Virginia.

While acknowledging this authority, the Taxpayer questions the nature of the assessment issued to him as a misuse of the General Assembly’s authority. Instead of using Virginia’s tax code for public wellbeing, the Taxpayer avers the Department by direct extension of the legislature is using taxation to maintain the status quo and, through policy initiatives, has deliberately created inequity to those who are marginalized within Virginia’s society making them vulnerable to the vicissitudes (unforeseen changes) of life. He further argues that the assessment represents a retrogressive (regressive) type of taxing policy that penalizes impoverished income earners while failing to pursue the tax obligations of the affluent in an equitable manner.

Article V, Section 9 of the Constitution of Virginia permits the General Assembly to statutorily prescribe the functions, powers, and duties of the administrative departments, divisions and agencies of the Commonwealth, including the Department. Virginia Code § 58.1-202 sets forth the general powers and duties of Tax Commissioner. Under Virginia Code § 58.1-202 1., the Tax Commissioner is responsible for supervising the administration of Virginia’s tax laws as they relate to taxpayers subject to Virginia tax and any assessments thereon, with an understanding that assessments should be equitable and avoid duplication of taxation. Thus, the Department is limited to ensuring its assessments are equitably made under the statutory system established by the General Assembly. Yet, the Taxpayer is asking the Department to disregard statutory authority based on unsubstantiated claims of discrimination. The Department is unable to do so.

Accordingly, the Taxpayer’s request for the abatement of the assessment for the 2013 taxable year cannot be granted. Collection action as permitted by law will continue.

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/1921.B