June 2, 2020
Re: §58.1-1821 Appeal: Individual Income Tax
Dear *****:
This will reply to your letter in which you see correction of the individual income tax assessments issued to ***** (the “Taxpayers”) for the taxable years ended December 31, 2016, through 2018.
FACTS
The Taxpayers, a husband and wife, filed joint Virginia individual income tax returns for the 2016, through 2018 taxable years. The Taxpayers claimed a subtraction for active duty military pay for each taxable year. Under review, the Department denied the subtractions on the basis that the husband was not on active duty for more than 90 consecutive days. The Taxpayers appeal the assessments, contending there is no requirement that the 90 days be consecutive, and the husband was on active duty for 90 nonconsecutive days during each taxable year.
DETERMINATION
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 (IRC) 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 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 Virginia Code § 58.1-322.02.
Virginia Code § 58.1-322.02 15 provides military service personnel with a subtraction for up to $15,000 of basic military pay received during a taxable year, provided they are on extended active duty for a period in excess of 90 days. The subtraction is reduced when the amount of military basic pay received by the taxpayer exceeds $15,000 and is fully phased out when basic military pay reaches $30,000. The subtraction is available whether the individual is stationed inside or outside Virginia.
In 1999, the General Assembly enacted House Bill 1584 (Chapter 365, Acts of Assembly), which established the subtraction for military basic pay. In its Fiscal Impact Statement, the Department observed that payments received by members of the military reserves on active duty status during the time they participate in weekend exercises or other exercises of short duration would not qualify for the subtraction because the duration of those exercises normally does not last longer than 90 days. Contextually, the structure and language of the section provides the definition of extended active duty as a period in excess of 90 days.
By reason of their character as legislative grants, statutes relating to deductions and subtractions allowable in computing income and credits allowed against a tax liability must be strictly construed against the taxpayer in favor of the taxing authority. See Howell’s Motor Freight, Inc. et. al. v. Virginia Dep’t of Taxation, Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983).
The documentation provided by the Taxpayers indicates that, while the husband served more than 90 days of active duty during the 2016 and 2017 taxable years, the periods of active duty were not served consecutively. During the 2018 taxable year, however, the husband did not serve 90 days of active duty. As such, the income did not qualify for the subtraction because it did not meet the requirements of Virginia Code § 58.1-322.02 15.
The Department finds that the subtractions claimed by the Taxpayers for the 2016 through 2018 taxable years were properly disallowed. The Taxpayers will receive updated bills, which will include accrued interest to date. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest.
The Code of Virginia sections 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/2211.A