Tax Type
Individual Income Tax
Description
Taxpayers documentation proved capital gain received after they moved to State A
Topic
Persons Subject to Tax
Property Subject to Tax
Records/Returns/Payments
Date Issued
05-26-2009
May 26, 2009
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter seeking reconsideration of the Department's determination letter, published as Public Document (P.D.) 08-8 (1/11/2008), issued to your clients, ***** (the "Taxpayers").
FACTS
In April 2004, the Taxpayers, a husband and wife, abandoned their Virginia residency and established residence in (State A). The husband was the sole shareholder of an S corporation (Corporation A) located in State A. In September 2004, Corporation A sold its assets and realized a capital gain through the resulting distribution. The Taxpayers filed a part-year Virginia individual income tax return for the 2004 taxable year and attributed all of the gain to State A.
The Taxpayers were audited and the auditor attributed a portion of the gain to Virginia in proportion to the number of days the Taxpayers resided in Virginia. The Taxpayers contested the assessment, asserting that because the sale occurred after they moved to State A, no part of the gain should be included in Virginia taxable income. They argued they were not required to prorate the income from the gain from the sale of Corporation A because there was a clearly defined cut-off of activity as described in P.D. 95-184 (7/14/1995).
In P.D. 08-8, the Department disagreed with the Taxpayers' interpretation of the P.D. 95-184. Further, the Department determined that the gain must be prorated in accordance with the number of days the Taxpayers resided in Virginia in 2004. The Taxpayers have asked the Department to reconsider its determination in P.D. 08-8, contending that the capital gain should be attributed to State A because they resided in State A when the capital gain was realized.
DETERMINATION
Virginia Code § 58.1-303 and Title 23 of the Virginia Administrative Code (VAC) 10-110-40 were designed to tax only the portion of income attributable to the time a taxpayer lived in Virginia during a taxable year. See P.D. 00-212 (12/7/2000). In the case of income from property owned or from any business, trade, profession or occupation, the Department will consider income to be generated evenly throughout the year unless specifically documented otherwise. See P.D. 06-99 (9/29/2006).
In the instant case, documentation has been provided clearly specifying when the capital gain from sale of Corporation A's assets occurred. Based on this documentation, the Taxpayers received the gain after they moved to State A. As such, the capital gain should be attributed to State A. Accordingly, the assessment of individual income tax for the 2004 taxable year has been abated.
The Code of Virginia section, regulation and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions regarding this determination, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
-
-
-
-
-
-
AR/1-2933461097.B
Rulings of the Tax Commissioner