Tax Type
Individual Income Tax
Description
Nonresident income tax, domiciliary resident
Topic
Residency
Date Issued
06-28-2002
June 28, 2002
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessments issued to ***** (the "Taxpayer") for the taxable years ended December 31, 1996 through 1997. I apologize for the delay in the department's response.
FACTS
The Taxpayer's employer (the "Company") maintains an office in State A and an office in Virginia. The Taxpayer works out of both offices. The Taxpayer's compensation consists entirely of commissions earned as a stockbroker. On the Taxpayer's nonresident Virginia individual income tax returns, the compensation was apportioned based on the number of days spent in his respective offices. Under audit, the department determined that the Taxpayer was an actual resident of Virginia and all of the Taxpayer's compensation was earned in Virginia. The Taxpayer contends that he was a domiciliary resident of another state ("State A") and that the method of apportioning those 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."
The Taxpayer has provided information that shows that he was a domiciliary resident of Florida. That information included a schedule showing that he was in Virginia less than an aggregate of 183 days during each year in question. Therefore, based on the information provided, the Taxpayer was neither a domiciliary resident nor an actual resident of Virginia.
In circumstances where an individual taxpayer earns income (such as salaries and wages) both within and without Virginia, the taxpayer must apportion the income based on 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).
With regard to the method the Taxpayer used to apportion the commission income between Virginia and State A, the department previously addressed this method in P.D. 01-27, (3/28/01). In this ruling, the department agreed that a taxpayer could be taxed only on the commissions generated from activities occurring within Virginia and allowed commissions to be apportioned based on the ratio of the number of days that services were performed in Virginia to the number of days that services were performed elsewhere.
The information available indicates that the Taxpayer's compensation was apportioned in accordance with P.D. 01-27. Accordingly, the tax, penalty and interest assessed against the Taxpayer for the 1994 through 1997 taxable years have been abated. Additionally, the portion of the Taxpayer's 1998 individual income tax refund that was withheld as a payment on the assessment will be refunded shortly.
Copies of the Code of Virginia and public documents cited along with other documents are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
Rulings of the Tax Commissioner