Tax Type
Individual Income Tax
Description
Taxpayer telecommuted portion of salary taxed by both Virginia and New York
Topic
Computation of Income
Computation of Tax
Credits
Filing Status
Subtractions and Exclusions
Date Issued
08-16-2010
August 16, 2010
Re: § 58.1-1821 Appeal: 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 2008 taxable year. I apologize for the delay in the Department's response.
FACTS
The Taxpayer, moved from New York to Virginia in May 2008. He continued to work remotely by telecommuting until November 2008. On his New York Nonresident and Part-Year Resident income tax return, the Taxpayer included income subject to New York tax in his salary earned in Virginia while telecommuting.
On the 2008 Virginia part-year resident income tax return, the Taxpayer subtracted a portion of income earned from New York sources from Virginia taxable income. The Taxpayer also took a credit for taxes paid to New York. The Department disallowed the credit and issued an assessment.
The Taxpayer appeals the assessment, contending that the portion of the salary earned from his New York employer while a resident of Virginia was taxed by both Virginia and New York, and New York would not allow a credit for taxes paid to Virginia.
DETERMINATION
Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia return for income taxes paid to another state provided the income is either earned or business income. Specifically, the statute states that a credit is permitted "[w]henever a Virginia resident has become liable to another state for income tax on any earned or business income . . . derived from sources outside the Commonwealth and subject to taxation under this chapter . . ." The statute does not specify which state's sourcing rules are to be used in order to determine if the earned or business income is sourced outside Virginia.
Under New York's "convenience of the employer" test, when a nonresident of New York works for a New York employer, income derived from work in another state is taxable by New York unless performed in such other state for the necessity of the employer. See N.Y. Comp. Codes R. & Regs. tit. 20, § 132.18(a) (1995). In Thomas L. Huckaby v. New York State Division of Tax Appeals, 796 NYS2d 312, 829 NE 2d 312 (2005), the New York Court of Appeals ruled that the state can tax out-of-state telecommuters.
New York did not permit the Taxpayer to claim a credit on his individual income tax return for taxes paid to Virginia attributable to periods when he worked for his New York employer while residing in Virginia. Conversely, the Virginia statute does not prohibit the credit. Accordingly, in the situation presented, the Department will allow the Taxpayer to claim a credit for the income tax paid to New York for income earned during periods when the Taxpayer telecommuted for his convenience while working for his New York employer. The credit may not exceed the income tax paid to New York for the relevant period when the Taxpayer worked in Virginia for the New York employer, and may not exceed the Virginia income tax attributable to that same period.
The assessment will be adjusted in accordance with this determination and Public Document (P.D.) 95-96 (5/1/1995). If any additional tax liability remains, a revised assessment will be issued. If the adjustment results in an overpayment, a refund will be issued.
The Code of Virginia sections cited, along with other reference documents, 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 concerning this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings at *****.
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- Sincerely,
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- Linda Foster
Deputy Tax Commissioner
- Linda Foster
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AR/1-3975278881.C
Rulings of the Tax Commissioner