82-58 | Virginia Tax

Tax Type

Individual Income Tax

Description

Dividend income from foreign sources.

Topic

Appropriateness of Audit Methodology

Date Issued

05-05-1982

May 5, 1982

Re: §58-1118 Determination/Individual Income Tax
Taxable Years 1979 and 1980

Dear *********************

This will reply to your letter of March 31, 1982 referencing my March 19, denial of your application for correction of assessments of individual income tax for taxable years 1979 and 1980.

We will continue to maintain that our interpretation of §58-151.015 is correct. This position, as set forth in my March 19, letter, is supported by our interpretation of the word "state". Further, in your case the income derived from non-Virginia sources represents dividend income from foreign sources.

§58-151.015(a) of the Code of Virginia which allows credits for taxes paid to another state allows the credit for income tax liability on:

- (E)arned or business income, or any part thereof, for the taxable year, derived from sources without this State (Emphasis Added)

Virginia Code §58-151.01(a) states:

- Any term used in this chapter shall have the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required.

Thus, the Virginia credit for taxes on non-Virginia income is limited to taxes on earned or business income. Since your federal tax returns for taxable years 1979 and 1980 do not support a contention that this is business income, we must determine whether these dividends constitute earned income. Absent a specific definition of "earned income" in Virginia law, §58-151.01(a) requires that we look for a comparable definition in federal tax law. §911(b) of the Internal Revenue Code of 1954, as amended, which was effective for tax years 1979 and 1980 defines "earned income" for purposes of the foreign tax credit as:

- wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered.

Based upon this definition, dividends and other investment income would not constitute "earned income". Therefore, in the instant case the construction placed upon the word "state" is a moot point, since the income itself does not constitute non-Virginia earned or business income for purposes of the tax credit.

Sincerely,

W. H. Forst
State Tax Commissioner

Rulings of the Tax Commissioner