Tax Type
Individual Income Tax
Description
Bonus not Virginia source income for purposes of the nonresident apportionment factor
Topic
Filing Status
Subtractions and Exclusions
Taxpayers' Remedies
Date Issued
05-19-2008
May 19, 2008
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you contest the Department's adjustment to the individual income tax return filed by ***** (the "Taxpayer") for the taxable year ended December 31, 2006. The Department's adjustment resulted in a reduced refund paid to the Taxpayer.
FACTS
The Taxpayer is a resident of ***** (State A). In June 2006, the Taxpayer signed a contract with a Major League Baseball team. Pursuant to this contract, the Taxpayer was offered a signing bonus paid in two installments, one in 2006 and one in 2007. At the time of the signing, the Taxpayer was sent to a location outside Virginia for a brief instructional period, and then assigned to a minor league team operating in Virginia. In July 2006, the Taxpayer was reassigned to another minor league team located outside Virginia.
In 2006, the Taxpayer's W-2 statement issued by the Virginia minor league team reported the Taxpayer's 2006 bonus installment as Virginia source income. The Taxpayer filed a nonresident Virginia individual income tax return that reported the signing bonus as Virginia source income in the return's apportionment factor and subtracted the signing bonus.
The Department audited the Taxpayer and disallowed the subtraction, resulting in the Taxpayer's refund being reduced. The Taxpayer contends that none of the signing bonus should be subject to Virginia income tax and requests that the entire refund claimed on his return be allowed.
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 Va. Code § 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." (Emphasis added.)
Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code unless a different meaning is clearly required. For individual income tax purposes, Virginia "conforms" to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.
Virginia Code § 58.1-322 provides numerous additions, subtractions and deductions that modify FAGI. Virginia income tax statutes do not include a subtraction or deduction for signing bonuses paid by Major League Baseball teams. As such, the Department correctly disallowed the subtraction.
Public Document (P.D.) 07-59 (5/10/07), however, provides that a signing bonus for a nonresident athlete is Virginia source income only if it is predicated upon the performance of actual services in Virginia. In the instant case, the Taxpayer was awarded the bonus upon signing his contract with a Major League Baseball team. According to the contract, his signing bonus could only be forfeited for failing to report to, or abandoning the team without permission. As such, this signing bonus was not predicated upon his performing his services in Virginia.
Because the Taxpayer was a resident of State A at the time the contract was signed, the bonus was not Virginia source income for purposes of the nonresident apportionment factor. As such, the Taxpayer may file an amended 2006 Virginia nonresident individual income tax return to correct the nonresident apportionment factor to remove the signing bonus from income from Virginia sources. The amended return may be sent to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: *****.
The Code of Virginia sections and public document cited, along with other reference documents, are available on-line at ww.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-2098744803B
Rulings of the Tax Commissioner