Virginia State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Virginia, with full citations and the original source on every page.
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Could a 2005 Virginia assessment be overturned by arguing that IRS information was obtained unlawfully, without evidence of nonresidency?
No. Virginia held that IRC § 6103(d) authorized the Department to obtain IRS information for a resident nonfiler and that state law allowed an estimated assessment. Because the taxpayer offered no obj…
Must Virginia subtract federal savings-bond income again when calculating the income limit for its Age Deduction?
No. Virginia already subtracted tax-exempt income from United States obligations when computing Virginia taxable income. The Age Deduction's separate income test reduced federal adjusted gross income …
Did Virginia properly shift all income from a nonresident owner's LLC to Virginia because its only client was his Virginia S corporation?
Not entirely. Virginia overturned the auditor's related-party adjustment because the out-of-state LLC had economic substance and charged fees comparable to an unrelated provider. But the owner spent s…
When did a taxpayer on out-of-state and foreign job assignments successfully abandon Virginia domicile?
Virginia treated him as domiciled here through 2007 but not beginning in 2008. He had abandoned his former state in 2005 by resigning and moving to Virginia, obtaining a Virginia license and mailing a…
Could a Virginia military resident claim the full basic-pay subtraction and also subtract combat pay already excluded from federal income?
No. The extended-active-duty basic-pay subtraction was reduced dollar-for-dollar when basic pay exceeded $15,000 and fully phased out at $30,000. Combat-zone and qualified-hazardous-duty pay could be …
Could taxpayers defeat a Virginia resident assessment by demanding proof after ignoring requests prompted by a federal return using a Virginia address?
No. Virginia lawfully used federal information showing a Virginia address, requested records to determine liability, and assessed from the information available when the taxpayers did not respond. Bec…
Could a Virginia resident claim a credit for Maryland withholding on wages protected by reciprocity, and could Virginia waive the resulting penalty and interest?
The Maryland withholding did not create a Virginia credit because the resident's wages were not subject to Maryland income tax under the reciprocity agreement. Virginia upheld the tax and mandatory in…
Did living and working in another state end a taxpayer's Virginia domicile and qualify him for Virginia's credit for tax paid to that state?
No. Although the taxpayer maintained a home and worked in State A, he kept and regularly returned to a Virginia residence, received financial documents there, renewed a Virginia driver's license, and …
Could new Virginia residents claim Virginia's other-state credit for California tax on a 2010 installment payment from a business interest sold before they moved?
No. California sourced the installment gain to the taxpayers' California residence at the time of the 2007 sale, while Virginia taxed the 2010 payment because they were Virginia residents when they re…
Could taxpayers use the same 2008 net operating loss on their 2007 Virginia return after carrying the entire loss back to 2006 federally?
No. The taxpayers carried their entire 2008 net operating loss back to 2006 on the federal return, reducing federal adjusted gross income used by Virginia. Virginia had no independent provision allowi…
Did federal protection for a nonresident vessel pilot's compensation prevent Virginia tax on partnership income passed through by the pilots' association?
No. The federal rule protected compensation for piloting duties, but the association filed as a partnership and reported its fees less expenses as ordinary income. That character passed through to the…
Could a minister deduct an amount equal to a tax-exempt housing allowance as an unreimbursed employee business expense on the Virginia return?
No. Ordinary and necessary employee business expenses may qualify as federal itemized deductions, but the minister's housing allowance had already been excluded from federal gross income under IRC § 1…
Did moving to another state with a military spouse end a taxpayer's Virginia domicile for 2008?
No. The taxpayer lived and worked in State A near her military spouse, but filed there as a nonresident, admitted she remained a permanent Virginia resident, kept a Virginia driver's license and vehic…
Could taxpayers reopen a 2004-2006 residency determination after the 45-day reconsideration deadline or appeal 2007-2009 assessments after 90 days?
No. The July 12, 2010 determination for 2004-2006 could be reconsidered only if a qualifying request arrived within 45 days, but the taxpayers waited until May 13, 2011. Their December 2010 assessment…
Could an estate recover a 2005 Virginia overpayment when illness delayed the original return until December 2009?
No. The taxpayer's illness could require a fiduciary or authorized agent to file on her behalf, but Virginia law did not suspend the refund limitation period for mental or physical disability. Because…
What did the Warren County Circuit Court order in Early A. Caudle's case against the Virginia Department of Taxation?
The court sustained the Department's demurrer because the plaintiff did not object and dismissed the case with prejudice. The short published order does not describe the underlying tax dispute or stat…
Did a professional athlete become domiciled in Virginia during a brief visit before moving to a permanent job abroad?
No. The athlete had abandoned Virginia for State A in 2004 and moved to Country A for a permanent professional-sports job in January 2008. Although he obtained a Virginia driver's license, registered …
Could taxpayers claim Virginia's disability-income subtraction for police-retirement benefits already excluded from federal adjusted gross income?
No. The District of Columbia police-retirement disability benefits were treated as excluded from federal income and did not enter the taxpayers' federal adjusted gross income. Virginia's subtraction c…
Could in-home child-care providers keep their claimed business deductions when their records commingled business and personal expenses?
No. Virginia conforms to the federal starting point but may adjust federal adjusted gross income when reported deductions are inconsistent with federal law. The providers supplied invoices, bank state…
Could a taxpayer use overpayments from 2004-2006 returns filed in December 2010 to offset 2007 tax and avoid Virginia penalty and interest?
No. The three-year refund deadlines for 2004, 2005, and 2006 expired before the taxpayer filed all six returns on December 5, 2010, so those old overpayments could not be refunded or used as requested…
Could Virginia residents subtract a 2008 gain from foreign real property because the foreign country taxed it and federal law allowed a foreign tax credit?
No. Virginia began with the couple's federal adjusted gross income, which included the gain, and the General Assembly had repealed the state's foreign-source-income subtraction for taxable years begin…
Could a Virginia resident defeat a 2005 nonfiler assessment by arguing that IRS data sharing was illegal and that his income was not federal adjusted gross income?
No. Virginia law required a resident with taxable income to file, and federal law authorized the Department to receive IRS return information under its written coordination agreement. The taxpayer did…
Could a retired service member claim Virginia's military-spouse income-tax protection without sharing the active-duty spouse's out-of-state domicile?
No. The Servicemembers Civil Relief Act protection required the spouse claiming exemption and the active-duty service member to share the same domicile. The claimant showed intent to adopt another sta…
Could a Virginia resident avoid a 2007 assessment by refusing to report an IRS audit increase and claiming he had no federally taxable activity?
No. A taxpayer had one year after the final federal change to file an amended Virginia return. Because this taxpayer did not report the IRS increase, Virginia could assess the resulting tax at any tim…
Did Virginia finally uphold a 2008 residency assessment when a former service member claimed another domicile but supplied no supporting evidence?
Not finally. The taxpayer had not answered two Department requests or provided objective evidence supporting his claimed out-of-state domicile, so Virginia had no basis to revise the presumptively cor…
Could financial hardship excuse a 2007 Virginia refund return filed more than six months after the three-year deadline?
No. The original 2007 return had to be filed within three years of its due date to claim a refund, making the deadline May 2, 2011 because May 1 fell on a Sunday. The taxpayer filed on November 11, 20…
Did Virginia finally uphold a 2008 residency assessment against a student who lived in two other states but kept a Virginia driver's license?
Not finally. The student said she lived and attended college in two other states and paid tax there, but provided no supporting records despite two information requests. Her Virginia driver's license,…
Did evidence that eliminated a 2008 Virginia residency assessment also prove the taxpayer was not domiciled in Virginia during 2007?
No. Virginia had already abated the 2008 assessment based on additional evidence, but the 2007 record was different: the employer attributed all wages and withholding to Virginia, federal tax document…
Could a Virginia resident claim a state credit for foreign tax withheld from mutual-fund investment income?
No. Virginia's ordinary resident credit applied to qualifying income tax paid to another U.S. state, not to a foreign country. A separate foreign-country credit covered pension or retirement income de…
Could a Virginia resident subtract annuity-surrender gain because he borrowed the money before moving to Virginia and called it a death benefit?
No. Although the taxpayer borrowed from the annuity before moving to Virginia, he did not recognize the cash-surrender value, including the unpaid loan, until he surrendered the contract in 2008 while…
Could a Virginia resident claim a Virginia credit for West Virginia and Maryland tax withheld from wages covered by reciprocity?
No. Virginia's reciprocal agreements with West Virginia and Maryland exempted this Virginia resident's wages from those states' income taxes. Because he was not legally subject to their tax, he could …
Could Maryland residents recover Virginia tax withheld from Virginia wages when amended returns followed a later Maryland audit?
Yes. Under Virginia's reciprocal agreement with Maryland, the Maryland-resident spouses were not subject to Virginia income tax on their Virginia wages. Although the ordinary refund period had passed,…
Could a person who moved out of Virginia avoid adjustments to the standard deduction and personal exemption on a 2010 part-year return?
No. A part-year resident was taxable for the portion of the year spent as a Virginia resident. The standard deduction was prorated by the share of federal adjusted gross income attributable to Virgini…
Did living abroad, holding a foreign license, and paying foreign tax prove that a taxpayer abandoned Virginia domicile for 2008?
No. The taxpayer showed a residence, driver's license, vehicle, and tax return in another country, but did not provide requested voting records or a usable federal transcript. She also maintained a pe…
Could a Virginia-resident spouse claim a proportional share of joint federal itemized deductions when the other spouse lived in another state?
Yes. When a Virginia resident and nonresident spouse filed separate state returns but a joint federal return, separately traceable deductions belonged to the appropriate spouse. Joint deductions that …
Could a taxpayer shift a 2007 Virginia assessment to the preparer who completed the return, and could later deduction records still reduce it?
The assessment could not be transferred to the preparer. Virginia's self-assessment system made the taxpayer responsible for return accuracy, with any claim against a negligent preparer pursued separa…
Did new evidence about an out-of-state home and Virginia mailing arrangements prove that a taxpayer abandoned Virginia domicile for 2007?
No. On reconsideration, Virginia again found that the taxpayer had not abandoned her Virginia domicile. She kept and renewed a Virginia driver's license, registered vehicles in Virginia, was construct…
Did a timely extension payment preserve a 2006 Virginia refund when the taxpayer did not prove the return was filed within the extension period?
No. Paying with an extension was only one condition; the taxpayer also had to file the return by the extended November 1, 2007 deadline. Virginia had no record or objective proof of the claimed Octobe…
Could taxpayers subtract both a taxable annuity death benefit and a distribution from an inherited IRA on their 2008 Virginia return?
Only the annuity death benefit qualified. It was a federally taxable lump-sum payment to the beneficiary under an annuity contract, satisfying Virginia's subtraction. The inherited IRA distribution wa…
What happened when a taxpayer did not report an IRS income adjustment but later said she was only a part-year Virginia resident?
Virginia was authorized to assess the IRS adjustment because the taxpayer did not file the required amended Virginia return. But her original return had treated her as a full-year resident, while she …
Could beneficiaries subtract federally taxable annuity death-benefit payments from Virginia income when the benefits were not paid in a lump sum?
No. Virginia required an annuity death-benefit payment to come from an annuity contract, be awarded to the beneficiary in a lump sum, and be federally taxable. The wife's survivor annuity payments fai…
Could taxpayers contest unpaid tax from their 2005 return by saying an IRS dispute was pending without filing a complete Virginia appeal?
No. The taxpayers' letter did not identify an assessment error, relevant facts, grounds, or controlling legal authority, despite repeated requests for information. Virginia denied the incomplete appea…
Did a military spouse qualify for Virginia income tax protection when she obtained a Virginia driver's license and established domicile in Virginia?
No. The military-spouse protection required the spouse and service member to share the same out-of-state domicile. Virginia found that the spouse acquired Virginia domicile in 2007 after establishing …
Could taxpayers subtract unemployment benefits again when calculating the income limit for Virginia's age deduction?
No. Virginia said the federal unemployment exclusion was already recognized in federal adjusted gross income and required no fixed-date-conformity adjustment. Although Virginia allowed a separate subt…
Was a Virginia nonfiler's assessment unsupported when the Department relied on wage, dividend, and interest data from the IRS?
No. IRS information showed 2008 wage, dividend, and interest income and gave Virginia a factual basis to estimate tax when the taxpayer filed no return or response. The assessment was presumed correct…
Could taxpayers deduct motor-home loan interest even without Form 1098 or real-estate tax on the vehicle?
Yes. A lender did not have to issue Form 1098 because a motor home generally is not real property, and paying real-estate tax was not the test. The motor home contained sleeping space, a kitchen, and …
Could Virginia keep an itemized-deduction adjustment after the IRS withdrew it and the ordinary assessment period expired?
No. Virginia could assess the unreported income change at any time because the taxpayer failed to report the final federal change, and the taxpayer accepted that part. But once the IRS withdrew its it…
Did additional construction-business records reduce a couple's 2004 and 2005 Virginia income assessments?
Yes, in part. The appeal records still did not support the amounts originally reported, but they showed that the audit had allowed no construction-business expenses and justified revisions. Virginia a…
Did an out-of-state part-year return change Virginia's finding that a taxpayer became domiciled in Virginia in May 2007?
No. The other state's part-year return confirmed that the taxpayer left that state in April 2007 but did not show where she established domicile afterward. Virginia retained its finding that she becam…
Could a Virginia resident employed by NATO exclude qualifying foreign earnings from 2010 Virginia taxable income?
Yes. The taxpayer documented that NATO—not a United States agency—employed her under a three-year contract as a NATO International Staff member throughout 2010. Virginia therefore allowed the IRC § 91…
Could retired U.S. citizens abandon Virginia domicile by moving permanently to a foreign country?
Yes. U.S. citizenship did not prevent the couple from abandoning Virginia domicile and establishing domicile in a foreign country. Virginia found that the wife changed domicile when she moved there in…
How did Virginia allocate deductions and treat another state's National Guard pay when resident and nonresident spouses filed separately?
Virginia returned the itemized-deduction allocation for correction because the audit had included the nonresident spouse's combat pay in its proportional calculation. But the Virginia resident's State…
When do disability-plan payments stop qualifying for Virginia's disability-income subtraction?
At mandatory retirement age. Before then, qualifying employer-plan payments for absence caused by permanent and total disability could support Virginia's disability-income subtraction, up to the statu…
Could a Virginia resident exclude New York wages from Virginia income or claim credit without supplying the New York return?
The wages were not excluded. Virginia could tax all income of its resident, including New York earnings. The taxpayer could potentially claim an other-state credit, limited to the lesser of New York t…
Did a military spouse have to marry or live with the servicemember in their domicile state to receive Virginia's 2009 spouse exemption?
No. The marriage location and the fact that the couple had not lived together in their domicile state did not control. The spouse proved she shared and maintained the servicemember's State A domicile …
Did an Arlington County court hold that the Gardiners were entitled to Virginia's other-state income-tax credit?
Yes. The Arlington County Circuit Court granted the Gardiners' motion for summary judgment, denied the Virginia Department of Taxation's cross-motion, and declared that the Gardiners were entitled to …
Could a couple defeat a 1999 Virginia assessment by asserting that they had filed a return when the Department had no record of it?
Not without evidence. Virginia had the couple's federal transcript and Forms W-2 but no record of a 1999 Virginia return, so their assertion that they had filed did not justify abatement. The Departme…
Could a military spouse claim the servicemember's State A domicile when her own records showed State B domicile?
No. The spouse's State B home, homestead exemption, vehicle registrations, and prior federal and Virginia filings showed that she established State B domicile before the marriage. She did not prove St…
Were missionaries domiciled abroad Virginia residents for 2007 because they kept Virginia ties?
No. Considering all the evidence, Virginia found the couple had established domicile in the foreign country in 1993 and had not abandoned it, despite a Virginia house, family address, voter registrati…
Did buying and using another state's transferable tax credit count as tax actually paid for Virginia's other-state credit?
No. Virginia treated both earned and purchased credits as reductions of another state's liability, not actual tax payments. Even if the transferable credit was property, its use was limited to the tax…
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These are official tax letter rulings and advisory opinions issued by Virginia's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.