Document Number
06-43
Tax Type
Individual Income Tax
Description
Estate's income does not meet the definition of "income from Virginia sources"
Topic
Estates and Trusts
Fiduciary
Date Issued
04-11-2006


April 11, 2006



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 assessment issued to ***** (the "Taxpayer") for the 2002 taxable year.

FACTS


An individual (the "Decedent") died in 2002. At the time of his death, he was a resident of ***** ("State A"), but employed in Virginia. The fiduciary of the Decedent's estate ("the Estate") resided in Virginia. The Taxpayer, a beneficiary of the estate, resides in ***** ("State B").

The Estate elected to distribute income to its beneficiaries for the 2002 taxable year. Under audit, the Department determined that the Estate was a Virginia resident estate, the distribution constituted income from Virginia sources. As a result, the Department issued an assessment for additional income tax, penalty and interest. The Taxpayer appeals the assessment, contending the Estate is a nonresident estate and none of the Estate's income is from Virginia sources.

DETERMINATION


Virginia Code § 58.1-302 defines a "resident estate or trust" as:
    • 1) The estate of a decedent who at his death was domiciled in the Commonwealth;
    • 2) A trust created by will of a decedent who at his death was domiciled
        • in the Commonwealth;
    • 3) A trust created by or consisting of property of a person domiciled in
        • the Commonwealth; or
    • 4) A trust or estate which is being administered in the Commonwealth.

Title 23 of the Virginia Administrative Code ("VAC") 10-115-10 provides that "a trust or estate is 'being administered in Virginia' if, for example, its assets are located in Virginia, its fiduciary is a resident of Virginia, or it is under the supervision of a Virginia court." In the instant case, the fiduciary of the Estate is a resident of Virginia. Therefore the Estate is a resident estate because it is being administered in Virginia.

Virginia Code § 58.1-325 defines the Virginia taxable income of a nonresident individual. The nonresident's total income, computed as if he were a Virginia resident, is multiplied by the ratio of his net income, gain, loss and deductions from Virginia sources to his net income, gain, loss and deduction from all sources to arrive at Virginia taxable income.

The determinative issue in this case is whether the distribution from the Estate constitutes income from Virginia sources. The Department has previously ruled that a nonresident is not liable for Virginia income tax passed through from a resident estate when such income does not result from Virginia sources. See Public Document ("P.D.") 91-226 (9/26/91).

According to evidence provided, distributions from the Estate included: (1) the proceeds from the sale of the Decedent's house in State A; (2) proceeds from bank accounts; and (3) proceeds from pensions from the Decedent's retirement accounts. Real estate sold in State A is not income from the ownership of real property in Virginia pursuant to Va. Code § 58.1-302. Further, the proceeds from bank accounts and pension distributions are not derived from a business, trade, profession or occupation carried on in Virginia or from the disposition of intangible personal property to the extent that such income from property employed by the taxpayer in a business, trade, profession or occupation carried on in Virginia. As such, the Estate's income does not meet the definition of "income from Virginia sources".

Neither the Taxpayer nor any other beneficiary is subject to Virginia income tax on the income that passed through from the Estate for the 2002 taxable year. As such, the individual income tax assessment issued to the Taxpayer for the 2002 taxable year is abated.

The Code of Virginia sections, Public Documents and regulation cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,

                • Kenneth W. Thorson
                  Tax Commissioner




AR/56255B


Rulings of the Tax Commissioner

Last Updated 09/16/2014 15:39