September 20, 2022
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond 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, 2018.
FACTS
The Taxpayer filed a Virginia resident individual income tax return and claimed a subtraction for retirement income attributable to retirement plan contributions previously taxed by another state. Under audit, the Department disallowed the subtraction and issued an assessment for additional tax and interest. The Taxpayer paid the assessment under protest and filed an appeal, contending that Virginia may not tax her retirement income because it is ***** (State A) source income.
DETERMINATION
Taxation of Virginia Residents
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Virginia Code § 58.1-302. The domiciliary residence of a person means the permanent place of residence of a taxpayer and the place to which he intends to return even though he may reside elsewhere. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia.
The Taxpayer submitted a domicile questionnaire stating that she has owned a home and lived in Virginia beginning in 2009 and continuing through 2018. She stated that she returned to State A in 2019 for health reasons. The Department’s records indicate that the Taxpayer consistently filed Virginia resident income tax returns for the 2003 through 2018 taxable years. The Taxpayer confirmed that she lived full time in Virginia during the 2018 taxable year and took only occasional visits to State A. The Taxpayer was therefore taxable as a Virginia resident for the 2018 taxable year.
It is well established that a state may tax all the income of its residents, even income earned outside the taxing jurisdiction. In New York ex rel. Cohn v. Graves, 300 U.S. 308, (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.”
The Taxpayer believes her retirement income was not subject to tax in Virginia because she resided in State A when the income was earned. Public Law (P.L.) 104-95, as codified at 4 U.S.C. § 114, prohibits a state from imposing an income tax on any retirement income received by an individual who is not a resident or domiciliary of that state. Consistent with her status as a Virginia resident, the Taxpayer filed a Virginia resident income tax return for the 2018 taxable year and a nonresident State A return to report income from rental properties located in State A.
To the extent included in federal adjusted gross income (FAGI), retirement income received by an actual or domiciliary resident of Virginia would be included in the computation of Virginia taxable income. In Public Document (P.D.) 02-118 (9/3/2002), the Department determined that under P.L. 104-95, retirement income received by an actual resident of Virginia was subject to Virginia’s income tax even if the retirement income was derived from employment in the other state and the taxpayer remained a domiciliary resident of the other state. See also P.D. 16-128 (6/22/2016).
Retirement Income Subtraction
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 FAGI. Income 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 Chapter 3 of Title 58.1 of the Code of Virginia.
Virginia Code § 58.1-322.02 11 provides a subtraction for certain distributions received from “an individual retirement account or annuity established under IRC § 408 . . . the contributions to which were deductible from the taxpayer’s federal adjusted gross income, but only to the extent the contributions to such plan or program were subject to taxation under the income tax in another state.”
Although the Taxpayer claimed this subtraction on her Virginia return, she does not contend that the retirement income met the eligibility requirements for the subtraction. In addition, no evidence has been provided to indicate that the retirement income satisfied the statutory requirements in order to claim the subtraction.
CONCLUSION
Because the Taxpayer was a resident of Virginia for the 2018 taxable year, she was subject to tax on her Virginia taxable income. Based on the information provided, the Taxpayer’s retirement income distribution was properly included in her Virginia taxable income and was not eligible for any subtraction. Therefore, the Taxpayer’s request for relief cannot be granted and the assessment is upheld. The Taxpayer has paid the assessment in full, and, accordingly, no further action is required.
The Code of Virginia sections and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. 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 4167.X