Tax Type
Fiduciary Income Tax
Individual Income Tax
Description
Out-of state tax credit
Topic
Estates and Trusts
Date Issued
12-20-1982
December 20, 1982
Re: 58-1118 Application: Individual Income Tax
Dear ********************
This will refer to our hearing of November 4, 1982, and your letter of July 9, 19&2, in which you requested correction of individual income tax assessed ********** for the taxable year 1979.
FACTS
The taxpayers are Virginia residents and the beneficiaries of income from a simple trust located in and taxed directly by Massachusetts. A Massachusetts fiduciary income tax return was filed and tax remitted by the trust for the taxable year 1979. The taxpayers claimed an out-of state tax credit on their 1979 Virginia individual income tax return for tax paid to Massachusetts by the trust. The department disallowed this credit and issued an assessment for additional tax due as the result of an office audit.
The taxpayers contest the assessment, contending that an cut-of-state tax credit is appropriate in this instance under the provisions of § 58-151.027 of the Code of Virginia.
DETERMINATION
Virginia Code § 58-15.015 provides resident individuals a credit against heir Virginia tax liability for tax paid to another state on earned or business income derived from sources within that state.
Credit for tax paid to another state is applicable mutatis mutandis to trusts and estates under the provisions of Virginia Code § 58-151.027.
The term "mutatis mutandis" means that matters or things are generally the same with necessary changes in points of detail and respective differences being taken into consideration. In applying the credit provision granted in Virginia Code § 58-151.015 to estates and trusts, only a Virginia fiduciary may properly claim a credit for tax paid by the trust in another state. Virginia Code § 58-151.027 cannot be construed as allowing individual beneficiaries a credit for tax paid by the trust to another state. The trust and its beneficiaries are two distinct and separate entities. Although the beneficiaries are the equitable owners of the trust, they are not the legal owners. Their title, right or interest exists by express virtue of the trust itself and consists essentially of a right to the performance of the trust. The trust and its beneficiaries are separate entities as are the taxes imposed on each. As such, tax paid by one cannot be credited against the liability of the other. Further, the credit granted under Virginia Code § 58-151.026(a) to beneficiaries of a trust whose Virginia taxable income includes an accumulation distribution is applicable only to the beneficiary of a complex trust which files a Virginia fiduciary tax return.
Therefore, based on the foregoing, I find no basis for correction of income tax assessed, which is due and payable.
Sincerely,
W.H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner