Tax Type
Individual Income Tax
Description
Apportionment of income
Topic
Allocation and Apportionment
Date Issued
03-28-2001
March 28, 2001
Re: § 58.1-1821 Application: Individual Income Taxation
Dear ****
This will reply to your letter in which you contest the assessment of additional Virginia income tax and interest against **** (the "Taxpayers") for the 1994 through 1997 taxable years.
FACTS
The Taxpayers, a Husband and Wife, are domiciliary residents of another state ("State A"). The Husband's employer (the "Company") maintains an office in State A and an office in Virginia. The Husband works out of both offices. The Husband's compensation consists entirely of commissions earned as a stockbroker.
For regulatory purposes, the Company has assigned the Husband to a Virginia branch office, which maintains supervisory responsibilities for him. All of the Husband's accounts are maintained and serviced at the Virginia office. For the years at issue, the Company issued W-2 forms reporting all of the Husband's compensation as Virginia income. On the Taxpayers' income tax returns, the Husband's compensation was apportioned based on the number of days spent in his respective offices. Under audit, the department determined that all of the Husband's compensation was earned in Virginia because the Husband's accounts were serviced and maintained in the Virginia office. The Taxpayers contend that the method of apportioning the Husband's commissions is consistent with the Code of Virginia and with public documents promulgated by the department.
DETERMINATION
Individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. The Virginia taxable income of a nonresident is defined under Code of Virginia § 58.1-325 as:
an amount bearing the same proportion to his Virginia taxable income, computed as though he were a resident, as the net amount of his income, gain, loss and deductions from Virginia sources bears to the net amount of his income, gain, loss and deductions from all sources.
Under Code of Virginia § 58.1-302, "Income and deductions from Virginia sources" includes income from, "[a] business, trade, profession or occupation carried on in Virginia." (Emphasis added).
The Husband's commissions were generated through business activities conducted by the Husband on behalf of the Company in both Virginia and in State A. The servicing of the Husband's accounts in Virginia is merely a supporting service for which the Company was compensated from the Husband's commissions. As such, the Taxpayers can only be taxed on the commissions generated from activities occurring within Virginia. Typically, the factor that most equitably determines the apportionment of salaries and wages is the ratio of the number of days that services were performed in Virginia to the number of days that services were performed elsewhere. See Public Document ("P.D.") 94-219 (7/13/94) (copy enclosed).
Because the Husband's compensation was apportioned in accordance with Virginia policy on the original income tax returns, the department's assessments of tax and interest for the 1994 through 1997 taxable years have been abated. If you have any questions regarding this determination, you may contact **** at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22077B
Re: § 58.1-1821 Application: Individual Income Taxation
Dear ****
This will reply to your letter in which you contest the assessment of additional Virginia income tax and interest against **** (the "Taxpayers") for the 1994 through 1997 taxable years.
FACTS
The Taxpayers, a Husband and Wife, are domiciliary residents of another state ("State A"). The Husband's employer (the "Company") maintains an office in State A and an office in Virginia. The Husband works out of both offices. The Husband's compensation consists entirely of commissions earned as a stockbroker.
For regulatory purposes, the Company has assigned the Husband to a Virginia branch office, which maintains supervisory responsibilities for him. All of the Husband's accounts are maintained and serviced at the Virginia office. For the years at issue, the Company issued W-2 forms reporting all of the Husband's compensation as Virginia income. On the Taxpayers' income tax returns, the Husband's compensation was apportioned based on the number of days spent in his respective offices. Under audit, the department determined that all of the Husband's compensation was earned in Virginia because the Husband's accounts were serviced and maintained in the Virginia office. The Taxpayers contend that the method of apportioning the Husband's commissions is consistent with the Code of Virginia and with public documents promulgated by the department.
DETERMINATION
Individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. The Virginia taxable income of a nonresident is defined under Code of Virginia § 58.1-325 as:
an amount bearing the same proportion to his Virginia taxable income, computed as though he were a resident, as the net amount of his income, gain, loss and deductions from Virginia sources bears to the net amount of his income, gain, loss and deductions from all sources.
Under Code of Virginia § 58.1-302, "Income and deductions from Virginia sources" includes income from, "[a] business, trade, profession or occupation carried on in Virginia." (Emphasis added).
The Husband's commissions were generated through business activities conducted by the Husband on behalf of the Company in both Virginia and in State A. The servicing of the Husband's accounts in Virginia is merely a supporting service for which the Company was compensated from the Husband's commissions. As such, the Taxpayers can only be taxed on the commissions generated from activities occurring within Virginia. Typically, the factor that most equitably determines the apportionment of salaries and wages is the ratio of the number of days that services were performed in Virginia to the number of days that services were performed elsewhere. See Public Document ("P.D.") 94-219 (7/13/94) (copy enclosed).
Because the Husband's compensation was apportioned in accordance with Virginia policy on the original income tax returns, the department's assessments of tax and interest for the 1994 through 1997 taxable years have been abated. If you have any questions regarding this determination, you may contact **** at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22077B
Related Documents
Rulings of the Tax Commissioner