Tax Type
Individual Income Tax
Description
Protective claims for refund; King v. Forst
Topic
Payment and Refund
Date Issued
08-30-1991
August 30, 1991
Re: Protective Claim: Individual Income Tax
Dear********************
This will reply to your letters of July 7 and July 8, 1988 in which you filed protective claims for refund for taxable years 1985 and 1986. The amended returns claim refunds 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).
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. 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 claims for refund for taxable years 1985 and 1986 are unaffected by this recent legislation. As provided under Va. Code §58.1-1823, the returns for taxable year 1985 and 1986 were filed "within three years from the last day prescribed by law for the timely filing of the return..." Accordingly, the amended returns have been accepted by the department and the appropriate refunds will be issued. The 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