Tax Type
Individual Income Tax
Description
Nonresident income tax, state of residence tax credit on Virginia returns.
Topic
Basis of Tax
Computation of Tax
Returns/Payments/Records
Date Issued
12-30-1982
December 30, 1982
Re: 58-1118 Application: Individual Income Tax
Dear ***********************
This will reply to your letter of July 6, 1982, in which you request relief of individual income tax assessed for the taxable years 1976, 1977, 1978, 1979, and 1981.
FACTS
The taxpayer is a resident of Tennessee but received Subchapter S income from sources in Virginia and filed Virginia nonresident income tax returns for the years 1976, 1977, 1978, 1979, and 1981. Subchapter S income is taxable under Tennessee law and the taxpayer was required to file resident tax returns with that state. The taxpayer claimed the state of residence tax credit on his Virginia returns. These credits were disallowed by the department and assessments were issued. The taxpayer requests relief of tax assessed.
DETERMINATION
§ 58-151.015(b) of the Code of Virginia provides a state of residence tax credit to nonresidents of this state provided that such credit shall be allowed only if the laws of the other state "(1) grant a substantially similar credit to residents of this state subject to income tax under such laws or (2) impose a tax upon the income 'of its residents derived from Virginia sources and exempt from taxation the income of residents of this State." To receive this credit, a taxpayer's state of residence must impose a tax on the income its residents derived from Virginia sources and either exempt Virginia residents from taxation or provide a credit to Virginia residents on tax paid to this state on income derived in such other state.
In determining whether a Tennessee resident may claim this credit, we must look closely at the meaning of various words and phrases incorporated in Virginia Code § 58-151.015(b).
First, we must look at the nature of the tax imposed by Tennessee upon its residents who derive income from Virginia sources. The department has consistently interpreted this exemption as applying only to residents of states which impose an income tax substantially similar to that of Virginia, i.e. a broad based net-income tax. However, Tennessee imposes an unconventional income tax in that only certain types of income are taxed.
Secondly, we must look at the phrase "exempt from taxation the income of residents of this State" in general and the meaning of the term "exemption" specifically with respect to taxation. Tennessee does not impose a nonresident income tax, so Virginia residents who earn income in Tennessee are immune from taxation. In case law generally, the term "exemption" presupposes a liability and is properly applied only to grant immunity to persons or property otherwise taxable. The fact that Tennessee does not impose a nonresident income tax does not necessarily mean that Tennessee exempts the income of nonresidents from taxation. An "exemption" from taxation presupposes existence of power to tax whereas "immunity" connotes absence of that power.
Thirdly, we must look to that portion of the code section which allows a credit provided that the taxpayer's state of residence grants a substantially similar credit to residents of Virginia. The Tennessee Income Tax Statute makes no provision for any tax credits, hence, a credit may not be claimed under this portion of Virginia Code § 58-151.015(b)
In conclusion, the income taxes imposed by Virginia and Tennessee are so dissimilar as to preclude the credit provisions embodied in Virginia Code § 58-151.015(b) from being applied to the Virginia tax liability of a Tennessee resident.
Therefore, based on the foregoing, I find no basis for relief of individual income tax assessed, which is due and payable.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner