Tax Type
Individual Income Tax
Description
Do alledged ambiguous instructions provide relief from payment of interest
Topic
Computation of Tax
Penalties and Interest
Date Issued
12-04-2001
December 4, 2001
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****
This will respond to your letter in which you seek correction of the assessment of interest on the 1997 Virginia individual income tax return of ***** (the "Taxpayer").
FACTS
The Taxpayer, a resident of Virginia in 1997, had taxable income in two other states. The Taxpayer combined the income and tax paid to these states in computing the out-of-state tax credit. On audit, the department separately computed the out-of-state tax credit for each state resulting in an assessment of additional tax and interest. The Taxpayer has paid the additional tax due, but contests the interest assessment on the grounds that the instructions for Schedule CR were not clear as to the requirement that the out-of-state tax credit must be computed separately for each state.
DETERMINATION
Code of Virginia § 58.1-332 establishes the Virginia out-of-state tax credit and provides that:
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- Whenever a Virginia resident has become liable to another state for income tax on any earned or business income or any gain on the sale of a capital asset (within the meaning of § 1221 of the Internal Revenue Code), not including an asset used in a trade or business, to the extent that such gain is included in federal adjusted gross income, for the taxable year, derived from sources outside the Commonwealth and subject to taxation under this chapter, the amount of such tax payable by him shall, upon proof of such payment, be credited on the taxpayer's return with the income tax so paid to the other state.
Because states vary as to the determination of income and the rate at which income is taxed, a separate computation must be made to determine the amount of credit the taxpayer should be granted for income taxes paid to another state.
In regard to the assessment of interest, Code of Virginia § 58.1-1812 mandates the application of interest to any assessment of tax by providing that:
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- If the Tax Commissioner ascertains that any person has failed to make a proper return or pay in full any proper tax he shall assess the taxes prescribed by law... In addition thereto, interest on the outstanding tax and penalty shall be charged at the rate established under Code of Virginia § 58.1-15 for the period between the due date and the full payment.
The application of interest to tax underpayments is mandatory under state law and cannot be waived unless the associated tax is adjusted. The interest in this case was correctly calculated under the law. Thus, the balance of the department's assessment remains due and payable.
To avoid the accrual of additional interest, please remit your payment of ***** within 30 days of the date of this letter. Your payment should be sent to *****, Office of Administration and Policy, Appeals and Rulings, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions regarding this matter, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/34611P
Rulings of the Tax Commissioner