Tax Type
Estate Tax
Description
Nonresident taxpayer's membership interests in Virginia LLC
Topic
Estates and Trusts
Persons Subject to Tax
Returns and Payments
Date Issued
12-20-2007
December 20, 2007
Re: § 58.1-1821 Application: Estate Tax
This will reply to your letter in which you seek a refund of estate tax paid by your client, the ***** (the "Taxpayer").
FACTS
The decedent was a resident of ***** (State A) at the time of her death. She was the sole member of a limited liability company (LLC) that owned real property located in Virginia. In 2005, the Taxpayer filed both State A and Virginia estate tax returns. The Taxpayer reported the value of the real property owned by the LLC on the Virginia estate tax return and paid the tax. The Taxpayer claimed a credit on State A's estate tax return for Virginia estate taxes paid.
Under audit, State A disallowed the credit claimed for the Virginia estate tax paid on the basis that the ownership interest in the LLC was personal property. The Taxpayer filed an amended Virginia estate tax return requesting a refund.
The Department denied the refund, concluding that the tax was correctly assessed because the estate held an interest in real property located in Virginia. The Taxpayer contends that it did not own real property in Virginia and that the membership in the LLC constitutes intangible property owned in State A's.
DETERMINATION
Virginia Code § 58.1-903 provides that the estates of nonresidents subject to federal estate tax may also be subject to Virginia estate tax if they contain real property and real property interests located in Virginia. The issue at hand is whether the Taxpayer's membership in the LLC is personal property held in State A or real estate located in Virginia.
Virginia Code § 58.1-901 specifically conforms the definitions of a "taxable estate" and "value" to the Internal Revenue Code (I.R.C.). The Internal Revenue looks to state law to determine legal interests and rights in the property it seeks to reach. Federal law then determines whether the taxpayer's state-delineated rights qualify as property or "rights to property" within the scope of the federal tax. Morgan v. Commissioner, 309 U.S. 78 (1940).
Under the Virginia Limited Liability Company Act, "A membership interest in a limited liability company is personal property." See Va. Code § 13.1-1038. Based on this statute, an estate's membership interest in a limited liability company would not be considered to be an interest in real property for purposes of determining Virginia estate tax.
Further, a membership interest in a limited liability company would be considered to be intangible personal property, which is usually located in the state of residence of the decedent. This is consistent with the Department's articulated policy with regard to partnerships. See Title 23 of the Virginia Administrative Code 10-300-10 B 3 (repealed effective 3/10/2007). Accordingly, I find that a nonresident taxpayer's membership interests in a Virginia LLC constitutes intangible property and any real property or real property interest held by the LLC is not subject to Virginia estate tax.
In accordance with this determination, the Taxpayer's amended estate tax return will be processed and a refund of tax and applicable interest will be issued. The Code of Virginia sections and regulations cited, as well as other reference documents, 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, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-1729999185B
Rulings of the Tax Commissioner