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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Did disability income paid by the Virginia Retirement System qualify for Virginia's disability-income subtraction?
Yes. Virginia allowed up to the statutory $20,000 subtraction because the VRS income statement treated the payments as disability income under IRC § 72 and the supporting documents showed qualificatio…
Could a Virginia military officer subtract combat-zone pay that exceeded the federal exclusion and remained in federal adjusted gross income?
Yes, but only for the qualifying amount still included in federal adjusted gross income. Enlisted combat pay excluded federally cannot also produce a Virginia subtraction. Officers can have compensati…
Could a startup real estate business deduct losses beyond current property income when its operations showed a genuine profit motive?
Yes. The wife was a licensed realtor, the couple kept separate business records, advertised properties, held open houses, spent about 25 hours weekly on the activity, and expected appreciation. Startu…
Did a Virginia driver's license, family mailing address, and visits establish Virginia domicile for a long-term Country A resident?
No. The taxpayer had lived in Country A since 1989, kept no Virginia home or registered vehicle, used family in Virginia to receive tax mail, and visited regularly. A Virginia license was strong contr…
Was a 1997 Virginia amended return timely for a credit after another state finally taxed part of a retirement lump sum?
Yes. Virginia followed the IRS closing agreement treating the 1997 lump sum as capital gain, a category eligible for the other-state tax credit. The other state's audit became final on October 25, 200…
Did a taxpayer abandon Virginia domicile in July 2005 despite retaining a Virginia home and some vehicle registrations?
Yes. The taxpayer moved into a State A residence in July 2005 and declared that date on his Virginia part-year return. Later actions—including surrendering his Virginia driver's license, obtaining a S…
Could a couple choose the federal home-sale gain exclusion for their former Virginia residence when another home also qualified?
Yes. The couple had used both the Virginia and State A homes as principal residences for at least two years within the relevant five-year periods. IRC § 121(f) allowed them to elect which qualifying s…
Did owning a Virginia vacation home, registering a car, and obtaining a Virginia driver's license make the taxpayer domiciled in Virginia?
No. The Virginia home and vehicle were used for vacations, and the taxpayer obtained the Virginia license for convenience. More importantly, he kept a permanent home, employment connection, vehicles, …
Could Virginia residents subtract combat pay already excluded federally and claim the full $15,000 extended-duty subtraction?
No. The record did not show any combat pay remaining in federal adjusted gross income, so there was nothing for Virginia's combat-zone subtraction to remove. The husband also received basic military p…
Could a Virginia resident subtract military pay earned in Virginia before a later combat-zone deployment?
No. Pay earned while the service member was stationed in Virginia before deployment was not attributable to combat-zone service. His later combat pay was already excluded from federal adjusted gross i…
Could taxpayers add a 30% Virginia depreciation deduction for property fully expensed under IRC § 179 when no federal bonus depreciation was claimed?
No. The couple fully expensed the 2004 business property under IRC § 179 and claimed no federal bonus depreciation. Virginia's fixed-date conformity rules adjusted federal bonus depreciation; they did…
Did a nonresident owe Virginia tax on income passed through from a Virginia LLC and S corporation?
Yes. The Virginia LLC and S corporation operated in Virginia, and the LLC apportioned all its income to Virginia. Under federal-conformity and pass-through rules, the income kept its Virginia-source c…
Were hotel owners Virginia residents for 2005-2007 when they kept Virginia property but spent fewer than 183 days there?
No. The couple established State A domicile through their full-time hotel business, home, vehicles, and the husband's license and voting registration. Virginia property and the wife's Virginia license…
Could a taxpayer defeat a Virginia assessment by arguing that only federal-connected work and money are taxable?
No. Virginia starts with federal adjusted gross income and taxes resident income unless a specific Virginia modification applies; taxability is not limited to federal-connected employment or money. Th…
Could a late 2003 Virginia overpayment claim offset a 2004 assessment after an IRS correction moved retirement income between years?
No. The federal correction became final on October 20, 2006, and Virginia said the amended 2003 return had to be filed by October 22, 2007. The couple waited until April 2008. Even though the same ret…
Could a 2003 overpayment reported on an August 2007 original return be credited against a 2004 Virginia assessment?
No. The three-year period for the 2003 overpayment expired May 1, 2007, and the taxpayer filed the original return on August 29, 2007. Calling the request a credit or carryforward rather than a refund…
Could a taxpayer challenge old Virginia assessments in 2008 when the latest assessment had been issued in May 2001?
No. For these pre-August 15, 2003 assessments, Virginia's then-existing policy accepted an administrative appeal within the three-year period for a judicial remedy. The latest assessment was dated May…
Did a couple abandon Virginia domicile after moving, buying a home, and operating a business in another state while retaining Virginia ties?
Yes. The couple established a permanent home and demanding business in another state and proved an intent to remain there indefinitely. Keeping an unsold Virginia house, an old Virginia registration, …
Could Virginia refund a 2003 overpayment when the original return was filed in April 2008 after the refund deadline?
No. Virginia's refund statute required the return or written claim within three years of the timely filing deadline. The April 2008 original return came after the applicable period, even considering t…
Did a taxpayer change Virginia domicile in June 2005 after moving to State A for a non-temporary job while retaining a Virginia driver's license?
Yes. The taxpayer stopped renting in Virginia, established a State A home, registered his car there, and accepted employment that was not shown to be temporary. Although retaining a recently renewed V…
Could Virginia residents subtract a New York state pension when their employee contributions had not been taxed by New York?
No. Virginia's subtraction applied only to the extent retirement contributions had been subject to another state's income tax after being deductible federally. The couple's prior New York returns show…
Did part-year Virginia residents have to prorate S-corporation capital gain that documentation showed arose after they moved away?
No. Virginia generally treated property or business income as earned evenly through the year unless the taxpayer documented a specific timing. On reconsideration, the couple supplied records clearly s…
How did Virginia tax S-corporation income after a couple moved away, merged the Virginia company, and performed no later Virginia work?
The original Virginia S corporation had nexus for all of 2004 because it operated in Virginia before the move and remained in existence until a September merger. Its income had to be divided between t…
How did Virginia source a nonresident consultant's salary and dividends from his Virginia corporation?
Virginia apportioned the consultant's salary using documented days worked in Virginia compared with days worked elsewhere, rather than attributing all salary to Virginia through a corporate equitable …
Could a taxpayer recover a 2001 Virginia overpayment, or use it against a 2003 balance, after filing the return in January 2008?
No. Even with a valid filing extension, the deadline for a 2001 refund claim expired November 1, 2005. The January 2008 return was too late under Va. Code § 58.1-499(D), so Virginia denied both a refu…
Could Virginia residents subtract foreign-source income from their 2007 Virginia taxable income?
No. Virginia began with the residents' federal adjusted gross income, which included the foreign income, and no Virginia modification authorized a subtraction in 2007. The General Assembly had repeale…
Could beneficiaries subtract federally taxable lump-sum death benefits received from annuity contracts on their Virginia income-tax return?
Yes. Virginia said the subtraction applied because each payment came from an annuity contract between an annuitant and insurer, was paid to the beneficiary in a lump sum, and was subject to federal in…
Could Virginia residents defeat assessments based on IRS changes when they filed no timely state amendments and supplied no proof the federal data was wrong?
No. The 2003 appeal was filed after the cited 90-day deadline. For 2004 and 2005, the residents had not timely reported the IRS changes and offered no evidence that the federal information or Virginia…
What does Virginia Ruling of the Tax Commissioner P.D. 09-9 conclude about Military wages resulting from combat duty or extended active duty?
No. Combat pay already excluded from federal adjusted gross income could not receive Virginia's combat-pay subtraction. The extended-active-duty subtraction was also reduced dollar for dollar when bas…
How much refund could a taxpayer receive after filing a part-year return beyond the normal three-year deadline?
Only one payment qualified. The late part-year return was outside the normal three-year refund period, and no IRS change supported the separate 60-day federal-adjustment rule. Virginia could refund as…
What does Virginia Ruling of the Tax Commissioner P.D. 09-17 conclude about Salary related to prior employment does not affect Taxpayer's right to subtraction?
Yes. Federal law treated the retiree as an employee and reported the taxable value of excess group-term life-insurance coverage as Form W-2 wages. Because his total W-2 income for 2006 was below $15,0…
Did a California shareholder owe Virginia nonresident tax on pass-through income from an S corporation with a Virginia office?
Yes. The S corporation's Virginia-source income remained Virginia-source income when passed through to the nonresident shareholder, even though he worked only in California. Because he filed no Virgin…
What does Virginia Ruling of the Tax Commissioner P.D. 09-10 conclude about Taxpayers failed to pay the tax due reported on the return?
Yes. Virginia taxed the pension distributions because the couple received them after becoming Virginia residents, even though the employment and pension accrual occurred in another state. Virginia did…
Did a traveling artist abandon Virginia domicile by owning homes and studios elsewhere while retaining a Virginia home, license, and voter registration?
No. Despite homes, studios, vehicles, and business ties in other states, the artist kept a preexisting Virginia residence, renewed a Virginia driver's license in 2003, remained registered to vote, con…
Could Virginia taxpayers claim 2004 depreciation on a business automobile after electing federal IRC § 179 expensing for the vehicle in 2003?
No. Virginia conformity included IRC § 179, so the taxpayers' 2003 federal election to expense the business automobile also controlled their Virginia income-tax calculation. The vehicle's cost belonge…
Did buying a home and opening a business office in another state end the taxpayer's Virginia domicile for 2005 and 2006?
No. Although the taxpayer established significant ties to another state, Virginia found that she did not abandon her Virginia domicile during 2005 or 2006 because she retained a home, driver's license…
Could a Virginia resident subtract pension distributions from another state's retirement system?
No. Virginia taxed the resident's New Hampshire pension because the contributions had not been subject to New Hampshire income tax, so the statutory subtraction did not apply; federal law also barred …
Could a permanently disabled taxpayer subtract third-party sick pay reported on Form W-2 from Virginia taxable income?
No. Virginia denied the subtraction because third-party sick pay reported as wages on Form W-2 was classified as temporary sick pay, not qualifying disability income, even though the taxpayer proved a…
Was the taxpayer a Virginia domiciliary resident for the 2005 tax year?
No. After weighing all the evidence, Virginia found that the taxpayer had abandoned Virginia domicile and established domicile in another state before 2005, so the 2005 individual income-tax assessmen…
How did an annual lump-sum premium affect Virginia's long-term-care insurance credit and deduction for 2006 and 2007?
The full annual premium paid in November 2006 covered the first 12 months, so the ruling applied the entire eligible payment to the 15% credit in 2006 rather than prorating two months. The 2007 annual…
Did owning a Virginia home through a qualified personal residence trust and holding Virginia licenses make a long-term foreign couple Virginia domiciliaries?
No. A Virginia QPRT residence and Virginia driver's licenses indicated possible Virginia domicile, but the couple's continuous foreign residence, voting, permanent-residency status, home, and license …
Did missionaries living and working abroad owe Virginia nonresident tax because Virginia churches issued their Forms 1099-MISC?
No. The married taxpayers lived and performed their missionary work outside Virginia, so payments reported by Virginia church organizations were not Virginia-source income. They were not required to f…
Could financial hardship allow a Virginia income-tax refund when the original returns were filed after the three-year refund deadline?
No. Although tax had been overwithheld, Virginia could not issue refunds for 2000-2003 because the original returns were filed after the three-year limitation period. Financial hardship did not change…
Could an LLC or S corporation claim Virginia's age deduction, and did a senior living only on Social Security need to file?
No entity could claim the age deduction because it was limited to individuals. A person age 65 or older whose sole income was Social Security could subtract benefits included in federal adjusted gross…
Did keeping a Virginia apartment and driver's license prevent a taxpayer working and living abroad from changing his domicile?
No. The Virginia apartment and renewed driver's license indicated continuing ties, but the taxpayer's permanent residency, foreign home, vehicle, license, employment, and absence from Virginia showed …
Did a nonresident owe Virginia tax on S-corporation investment income when a lower-tier partnership owned undeveloped Virginia land?
No for 2003-2004. The Virginia land created nexus through the pass-through structure, but all income-producing investment activity and costs occurred outside Virginia, so the S corporation had no Virg…
Could a person domiciled in another state exclude military pension income after living in Virginia for more than 183 days?
No. The taxpayer was a Virginia actual resident because he maintained an abode and lived in Virginia for more than 183 days. His military pension was taxable, and the claimed subtraction failed becaus…
What did the Chesterfield County Circuit Court decide in Ross L. McDonald's case against the Virginia Department of Taxation?
The court entered judgment for the Virginia Department of Taxation on every allegation. It granted a motion to strike part of Ross McDonald's complaint after his proof and then found, after all eviden…
Did a letter saying Virginia's nonfiler assessment was overstated constitute a complete administrative appeal without the promised return and proof?
No. A bare assertion that the assessment was overstated, without the promised return, detailed errors, facts, authority, or supporting records, was not a complete appeal. Virginia allowed 30 more days…
Did owning a Virginia house for his parents and obtaining a Virginia license make a long-term overseas worker a Virginia resident?
No. The house, tax mail, and driver's license indicated Virginia ties, but the taxpayer spent little time there, lived abroad with his wife and children, worked outside Virginia, and did not use the h…
Did a nonresident limited partner owe Virginia tax on income from a Virginia family partnership holding land and tangible assets?
Yes. The partnership did not qualify as a passive intangible-investment entity because it held Virginia land, coins, and interests in land-owning LLCs. It was headquartered and operated in Virginia, s…
Could Virginia residents claim a foreign-source-income subtraction passed through from an S corporation in 2005?
No. Virginia had repealed the individual foreign-source-income subtraction for taxable years beginning in 2003. Only modifications allowed under the individual statute could pass through from an S cor…
Could a Virginia resident defeat IRS-based assessments by filing self-created corrected 1099s and claiming the income was not constitutional income?
No. Virginia began with federal adjusted gross income and relied on IRS information. The taxpayer needed IRS documents confirming the original information returns were wrong and the corrected forms we…
Could a Virginia nonfiler invalidate an income-tax assessment by challenging the IRS information behind it?
No, not on the record presented. Virginia upheld the 2004 assessment because the taxpayer provided no objective evidence that the income information lawfully obtained from the IRS was incorrect.
Could a Virginia resident subtract Canadian and German income after the foreign-source subtraction was repealed?
No. Virginia denied the 2006 subtraction and refund because the foreign-source-income subtraction had been repealed, and the cited federal treaties did not limit Virginia's tax on resident income.
Could Virginia individuals subtract foreign-source income passed through from an S corporation after the individual subtraction was repealed?
No. Although the income met Virginia's foreign-source definition and corporations had a subtraction, individuals could receive only pass-through modifications authorized for them. Their subtraction ha…
Did Virginia conform to federal GO Zone bonus depreciation and the special five-year net-operating-loss carryback?
Yes. Virginia conformed to IRC § 1400N, so the 50% GO Zone depreciation deduction flowed through without a Virginia fixed-date adjustment and the special five-year GO Zone loss carryback was allowed.
Could Virginia residents claim a 2006 credit for another state's tax on partnership income that was taxable there in 2005?
No. The credit belongs to the year when the income was taxed by both states, not the later year when the other state's tax was paid. Virginia correctly denied the credit on the 2006 return, but the co…
Did taking a permanent job and leasing a home in another state end a taxpayer's Virginia domicile when his family, home, licenses, and registrations remained in Virginia?
No. Employment and a leased residence in State A showed some intent to relocate, but the taxpayer kept a Virginia home with his wife, renewed his Virginia driver's license, registered vehicles and rem…
Could Virginia uphold estimated income-tax assessments when resident nonfilers ignored information requests and did not prove the IRS data wrong?
Yes. Virginia could estimate the tax, assess at any time for unfiled returns, and presume its assessments correct. Because the taxpayers did not respond or prove the IRS information wrong, the assessm…
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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.