Tax Type
Individual Income Tax
Description
Taxes Paid to Other States; Protective Claims for Refund of Franchise Taxes
Topic
Credits
Date Issued
06-28-1991
June 28, 1991
Re: Protective Claim: Individual Income Tax
Dear*****************
This will reply to your letter of January 30, 1991 in which you supplied copies of the protective claims filed on behalf of your clients for taxable years 1986, 1987 and 1988. The original amended returns, claiming a refund based upon the decision of the Virginia Supreme Court in the case of Llewellyn King v. W. H. Forst, State Tax Commissioner, 239 Va. 557 (1990), were filed on April 30, 1990.
On April 20, 1990, in a 4-3 decision in the case of Llewellyn King v. Forst, the Virginia Supreme Court overturned the Department of Taxation's long-standing policy that franchise taxes and other such taxes which are based on income but not denominated as "income" taxes do not qualify for the credit for income taxes paid to another state (Va. Code 58.1-332). Legislation enacted by the 1991 General Assembly (HB 1734, Chapter 362 and SB 765, Chapter 456), effectively overturned the Virginia Supreme Court's King decision.
Under these bills, individuals are precluded from claiming a credit for franchise and similar taxes paid to other states as a result of the Virginia Supreme Court decision in King v. Forst. These bills limit the individual income tax credit for taxes paid to another state to true net "income" taxes. These bills made the change retroactive to taxable years beginning on and after January 1, 1987. However, taxpayers who filed a protective claim for refund under Va. Code 58.1-1824, based upon the King litigation before the date the bills were introduced (January 22, 1991), will be allowed refunds.
DETERMINATION
Because the legislation is retroactive to taxable years beginning on and after January 1, 1987 only, your clients' claim for refund for taxable year 1986 is unaffected by this recent legislation. As provided under Va. Code §58.1-1823, the return for taxable year 1986 was filed "within three years from the last day prescribed by law for the timely filing of the return..." Accordingly, the amended return has been accepted by the department and the appropriate refund will be issued.
I find that the protective claims for refund for taxable year 1987 and 1988 were properly filed under the provisions of Va. Code §58.1-1824 prior to the date the legislation overturning the King decision was introduced. Therefore, refunds will be allowed to the extent that the refunds claimed are based upon the decision of the Virginia Supreme Court in King v. Forst.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner