Tax Type
Individual Income Tax
Description
Out-of-state tax credit; Massachusetts fiduciary income
Topic
Credits
Date Issued
06-06-1985
June 6,1985
Re: §58.1-1821 Application/Individual Income Tax
Dear ****
This will reply to your letter of April 18, 1985 requesting correction of individual income tax assessed ***** ('Taxpayers'), for taxable year 1982.
FACTS
Taxpayers are Virginia residents and beneficiaries of income from a trust located in and taxed directly by Massachusetts. A Massachusetts fiduciary income tax return was filed and tax remitted by the trust for taxable year 1982. Taxpayers claimed an out of state tax credit on their 1982 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.
Taxpayers contest the assessment, contending that an out of state tax credit is appropriate in this instance under §58.1-332 of the Virginia Code.
DETERMINATION
§58.1-332 of the Virginia Code provides a credit for income tax paid to another state "on earned or business income, for the taxable year, derived from sources without the Commonwealth."
"Earned income" is defined by the Virginia Individual Income Tax Regulations, as "wages, salaries or professional fees and other amounts received as compensation for services actually rendered." "Business income" is defined as income "from an activity which constitutes a "business" for federal income tax purposes." See §630-2-232(B)(2)&(C).
Furthermore, the regulations provide that "The credit may be claimed with respect to an income tax liability incurred on non-Virginia source income to another state." However, "A credit may not be claimed by an individual for tax imposed by another state on a distributing entity e.g., a Subchapter S Corporation or a trust, in which the individual is a beneficiary or a shareholder." See§630-2-332(B)(3).
The trust in the present case and its beneficiaries are separate and distinct taxable entities. Although the beneficiaries are the equitable owners of the trust, they are not the legal owners. Therefore, the income tax paid by one cannot be credited against the liability of the other, regardless of the way in which the income from such trust was reported.
Therefore, based on the foregoing, I find no basis for correction of the additional income tax assessed, which is due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Re: §58.1-1821 Application/Individual Income Tax
Dear ****
This will reply to your letter of April 18, 1985 requesting correction of individual income tax assessed ***** ('Taxpayers'), for taxable year 1982.
FACTS
Taxpayers are Virginia residents and beneficiaries of income from a trust located in and taxed directly by Massachusetts. A Massachusetts fiduciary income tax return was filed and tax remitted by the trust for taxable year 1982. Taxpayers claimed an out of state tax credit on their 1982 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.
Taxpayers contest the assessment, contending that an out of state tax credit is appropriate in this instance under §58.1-332 of the Virginia Code.
DETERMINATION
§58.1-332 of the Virginia Code provides a credit for income tax paid to another state "on earned or business income, for the taxable year, derived from sources without the Commonwealth."
"Earned income" is defined by the Virginia Individual Income Tax Regulations, as "wages, salaries or professional fees and other amounts received as compensation for services actually rendered." "Business income" is defined as income "from an activity which constitutes a "business" for federal income tax purposes." See §630-2-232(B)(2)&(C).
Furthermore, the regulations provide that "The credit may be claimed with respect to an income tax liability incurred on non-Virginia source income to another state." However, "A credit may not be claimed by an individual for tax imposed by another state on a distributing entity e.g., a Subchapter S Corporation or a trust, in which the individual is a beneficiary or a shareholder." See§630-2-332(B)(3).
The trust in the present case and its beneficiaries are separate and distinct taxable entities. Although the beneficiaries are the equitable owners of the trust, they are not the legal owners. Therefore, the income tax paid by one cannot be credited against the liability of the other, regardless of the way in which the income from such trust was reported.
Therefore, based on the foregoing, I find no basis for correction of the additional income tax assessed, which is due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner