Tax Type
Individual Income Tax
Description
Protective claim for refund; King v. Forst
Topic
Payment and Refund
Date Issued
09-06-1991
September 6, 1991
Re: Protective Claim: Individual Income Tax
Dear******************
This will reply to your letter of Nay 1, 1990 in which you filed a protective claim on behalf of your client, for taxable year 1986. The protective claim for refund was based upon the decision of the Virginia Supreme Court in the case of Llewellvn 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 Llewellvn 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 client's 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..." The 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. Please provide a copy of the amended return along with a copy of this letter to the department's Technical Services Section.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner