August 23, 2017
Re: § 58.1-1821 Appeal: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the individual income tax assessment issued to ***** (the ”Taxpayer”) for the taxable year ended December 31, 2013.
FACTS
The Taxpayer filed a Virginia resident individual income tax return for the 2013 taxable year on April 10, 2014. Under review, the Department adjusted the credit he claimed for income tax paid to other states and issued an assessment on April 21, 2017. The Taxpayer appealed, contending he should have been allowed credit for taxes paid to certain states in which composite nonresidents returns were filed on his behalf. The Taxpayer also contends that the Department issued the assessment after the statute of limitations on assessment expired.
DETERMINATION
Credit for Taxes Paid
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. A taxpayer claiming the out-of-state tax credit for income taxes paid to another state on a unified return must attach a statement to his return verifying: (1) the taxpayer's pro rata portion of the unified return's taxable income, and (2) the taxpayer's pro rata portion of the tax paid to the applicable state by the partnership on the individual's behalf. See Public Document (P.D.) 07-207 (12/5/2007). When a unified return is filed in several states by a pass-though entity, a taxpayer's pro rata portion of the unified return's taxable income for each state and the taxpayer's pro rata portion of the tax paid to each applicable state must be listed separately in order to properly compute the limitation for each state's credit. See P.D. 10-68 (5/12/2010).
The Taxpayer submitted a schedule detailing the information that is required by the Department's policy as to unified nonresident returns. While the appeal was pending, the Department granted the credit with respect to two additional states and issued a revised assessment which the Taxpayer paid. The documentation provided indicates that the Taxpayer was entitled to credit for taxes paid to three additional states. The three states are Hawaii, Mississippi and Montana.
Statute of Limitations on Assessment
The general statute of limitations for issuing tax assessments is provided under Va. Code § 58.1-104. For income tax purposes, however, Va. Code § 58.1-312 governs when assessments may be issued. Virginia Code § 58.1-312 allows the Department to assess omitted taxes within three years of the latter of the due date of the return or the actual date that the return was filed. Virginia Code § 58.1-341 A requires that a taxpayer file an individual income tax return by May 1 of the year following the tax year for which the return is filed. The Taxpayer filed his return on April 10, 2014, but the return was not due until May 1, 2014. The Department, therefore, had until May 1, 2017, to issue an assessment. Thus, the assessment issued on April 21, 2017, was made within the statute of limitations.
CONCLUSION
The Department timely issued the assessment, but the Taxpayer was entitled to credit for taxes paid to three more states than the Department allowed. The assessment, therefore, will be revised accordingly. Because the assessment has been paid, a refund will be issued as warranted.
The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions 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 *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1278.M