Tax Type
Individual Income Tax
Description
Request for protective claim; franchise taxes
Topic
Returns/Payments/Records
Date Issued
07-19-1991
July 19, 1991
Re: Protective Claim: Individual Income Tax
§1821 Application: Individual Income Tax
Dear ***********************
This will reply to your letter on behalf of your clients, ********dated May 15, 1990 in which you filed a protective claim for refund for taxable year 1988 and your letter dated June 21, 1990 in which you applied for correction of the assessment for taxable year 1987. Both the amended return, claiming a refund for taxable year 1988 and the letter contesting the assessment for taxable year 1987 rely 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).
BACKGROUND
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.
DETERMINATION
The legislation enacted by the 1991 General Assembly effectively overturning the Virginia Supreme Court's King decision contained only one narrowly defined exception to the retroactive application of the legislation. The third enactment clause provides:
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- That no protective claim for refund filed with the Department of Taxation pursuant to §58.1-1824 prior to the introduction of this bill shall be affected by the passage thereof.
Your client's protective claim for refund for taxable year 1988 was properly filed under the provisions of Va. Code §58.1-1824 prior to the date the legislation overturning the King decision was introduced. Therefore, a refund will be allowed to the extent that the refund claimed is based upon the decision of the Virginia Supreme Court in King v. Forst
However, since the only exception to the retroactive application of the legislation is for protective claims for refund filed with the department pursuant to Va. Code §58.1-1824 prior to the introduction of the bill, I have no authority under Va. Code §58.1-1821 to authorize the correction of the assessment issued for taxable year 1987.
However, I will withhold collection for an additional 30 days to allow you time to present any additional information that may be pertinent to the acceptance of an offer in compromise under Va. Code §58.1-105.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner