Document Number
95-174
Tax Type
Individual Income Tax
Description
Taxes paid by residents to other states
Topic
Credits
Date Issued
06-27-1995
June 27, 1995


Re: §58.1-1821 Application: Individual Income Tax


Dear*************

This will reply to your letter of January 10, 1995, in which you protest the disallowance of a credit for income tax paid to another state claimed by********** (the "Taxpayers"), for taxable year 1990.
FACTS

The Taxpayers were contacted by the department for failing to file a 1990 Virginia return. The Taxpayers were issued an assessment based on federal information when no response to this inquiry was received. The Taxpayers later filed a Virginia return claiming credit for Minnesota income tax withheld. Credit for the Minnesota withholding was denied; however, the 1990 assessment was reduced because credit was given for Virginia income tax withheld.

You contacted the department concerning amending the Taxpayers' 1990 Virginia return in order to claim a credit for income tax paid to Minnesota pursuant to Code of Virginia §58.1-332(A). You were told that the statute of limitations barred the filing of an amended return to claim this credit. You now submit an amended Virginia return claiming this credit, have attached a copy of the Taxpayers' 1990 Minnesota return, and request that the assessment be adjusted accordingly.
DETERMINATION


Code of Virginia §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. However, Code of Virginia §58.1-332(A), in pertinent part, places a limitation on the credit:
    • The credit allowable under this section shall not exceed: ... such proportion of the income tax otherwise payable by him under this chapter as his income upon which the tax imposed by the other state was computed bears to his Virginia taxable income upon which the tax imposed by this Commonwealth was computed ... (Emphasis added).
Because of this limitation on the credit, a copy of Form W-2 showing income tax was withheld by another state is insufficient for the department to allow this credit. Instead, a taxpayer must provide the department with a copy of the return filed with another state so that it can be determined if the limitation imposed by Code of Virginia §58.1-332(A) is applicable.

When a taxpayer applies for administrative relief under Code of Virginia §58.1 1821, Code of Virginia §58.1-1822 provides that "[i]f the Tax Commissioner is satisfied, by evidence submitted to him or otherwise, that an applicant is erroneously or improperly assessed with any tax administered by the Department of Taxation, the Tax Commissioner may order that such assessment be corrected." The Taxpayers have paid tax to Minnesota and now evidence this fact by submitting a copy of the return filed with that state. Therefore, the Taxpayers' request for correction of an unpaid assessment is not barred by the statute of limitations where an application is made pursuant to Code of Virginia §58.1-1821 on a timely basis.

The department has ruled on two previous occasions on the method in which a Virginia resident will compute a credit for income tax paid to a state which determines the tax on a nonresident in a manner similar to Minnesota. See Public Documents ("P.D.") 95-96 (5/1/95) and 94-91 (3/29/94), copies attached, dealing with New York taxes.

An analysis of the Minnesota and New York nonresident individual income tax formulas shows these computations to be the same in all material respects. Both computations require the nonresident to compute taxable income and tax as if they were a resident. Both computations then convert a resident tax to a nonresident tax by applying a proportion that references nonresident income to total income. Therefore, the department finds its written policy as described in the aforementioned rulings to be appropriate for a Virginia resident in computing a credit for income tax paid to Minnesota. The Taxpayers' claim for credit for income tax paid to Minnesota has been recomputed in accordance with the department's written policy.

Attached is a schedule showing the corrected computation of the Taxpayers' 1990 Virginia tax liability and the remaining balance due. These calculations take into consideration the payment submitted by the Taxpayers' with their original filing. The balance should be paid in full within 30 days to avoid the accrual of additional interest. Please forward your payment to the Office of Tax Policy, the Virginia Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282. Should you have additional questions regarding this matter, please contact**************

                        • Sincerely,


                          Danny M. Payne
                          Tax Commissioner



OTP/9230L



Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46