Tax Type
Individual Income Tax
Partnerships
Description
Unified nonresident income tax return; Partnership
Topic
Partnerships
Returns/Payments/Records
Date Issued
02-20-1987
February 20, 1987
Re: Ruling Request - Nonresident Partners
Individual Income Tax
Dear***************
This is in reply to your letter of April 14, 1986 in which you request that the department grant permission to your client, *********************** (Partnership), to file a unified nonresident individual income tax return on behalf of their Maryland partners.
FACTS AND PROPOSAL
Partnership is a non-Virginia partnership with offices in Maryland, the District of Columbia and Virginia. Its partners are both individuals and professional corporations. Recognizing the corporate filing obligations of the professional corporations, you request permission for the individual partners, who are Maryland residents, to file one unified Virginia nonresident individual income tax return.
Because of the income tax reciprocity practiced between Maryland and Virginia, you request that the department make an exception to its usual unified return requirements. You propose that Partnership file a unified nonresident individual income tax return, on behalf of its individual Maryland partners, and pay a tax at a flat rate of .75%.
Your proposal is based upon the income tax reciprocity practiced between Maryland and Virginia and the income tax rate structure of Maryland and Virginia. Virginia normally allows a credit on the Virginia nonresident individual income tax return filed by Maryland residents, to report business income from Virginia sources, for the resident individual income tax paid to Maryland. The maximum individual income tax rate imposed by Maryland is 5% (ignoring the Maryland local tax), while the maximum Virginia individual income tax rate is 5.75%. Therefore, assuming the Maryland residents are being taxed at the maximum rate in both states, the Maryland resident partners would pay a net Virginia income tax at a rate of .75%.
RULING
Section 630-4-391(C)(2) of the Virginia Taxation of Partnerships Regulations provides that the Tax Commissioner may grant permission to nonresident partnerships to file a statement of combined partnership income attributable to nonresident partners. This provision of the regulations relieves the nonresident partners of the responsibility of having to file nonresident individual income tax returns.
Pursuant to this regulatory authority, the department has developed "standard" requirements, which are imposed with very little deviation upon all partnerships which request permission to file such a return on behalf of their Virginia nonresident partners. These "standard" requirements were developed in order to minimize the administrative burden of both the partnership and the department and to ensure compliance with the laws of this Commonwealth. These same basic requirements are imposed upon all partnerships requesting permission to file a unified return in order that equal treatment is assured. Accordingly, the department finds your proposal unacceptable.
Partnerships are under no obligation to file such a unified return. Each partnership should examine the option of filing a unified return on behalf of its nonresident partners, based upon the requirements of the department and the effect of these requirements on their partners. While it may be beneficial for one partnership to file such a return for its partners, it may not be beneficial for another partnership to file such a return.
In order for the department to accept a unified nonresident individual income tax return and thus relieve the nonresident partners of the responsibility of having to file separate Virginia nonresident returns, the following conditions must be met:
1. A schedule must be provided containing the total income of the Partnership and the amount attributable to Virginia under either the applicable state apportionment formula, as provided in Virginia Code §§58.1-408 through 58.1-421, or by using an approved alternative method.
2. The unified return must reflect only the income or loss attributable to Virginia nonresident partners who have no income from Virginia sources other than income attributable to Partnership.
3. All individual nonresident partners without other income from Virginia sources must elect to join in the filing of such a return and a statement to such effect will be included in the return. Since some of the partners of Partnership are not "individuals" as defined by Virginia Code §58.1-302, these partners must be excluded from the filing of the unified Virginia nonresident individual income tax return.
4. The unified return will reflect only the income or loss attributable to Virginia individual nonresident partners who have no income from Virginia sources other than income attributable to the partnership.
5. The Virginia income tax will be computed at the rates specified under Virginia Code 58.1-320 on Partnership's income attributable to the nonresident partners without benefit of itemized deductions, standard deductions, personal exemptions or credit for income taxes paid to states of residence.
6. The return will contain a statement indicating the responsibility of each nonresident partner for his share of the total tax and any statements made on his behalf. The statement will be signed by each nonresident partner.
7. A similar unified return will be filed and payment made for the declaration of estimated tax, if required.
If the above is acceptable, Partnership may commence the unified filing under the above conditions effective for calendar year 1985. However, we reserve the right to withdraw or modify the foregoing authorization upon reasonable notice to you.
If the above is not acceptable, please note that each nonresident partner having taxable income for a taxable year must file a Virginia return, unless the individual meets the "$3,000 filing exception" described in Virginia Code §58.1-321. Failure to file an individual nonresident return would subject the nonresident partner to penalty and interest, which could not be mitigated by the fact that a unified filing had been made unless the unified filing was in accordance with the conditions set forth above.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner