Tax Type
Individual Income Tax
Description
Credit For Taxes Paid by Residents to Other States; Franchise and Similar Taxes
Topic
Credits
Date Issued
08-17-1992
August 17, 1992
Re: §1821 Application: Individual Income Tax
Dear*****************
This will reply to your letter on behalf of your clients, ********dated October 31, 1991 in which you applied for correction of the assessment for taxable year 1989. Your letter contesting the assessment relied upon the decision of the Virginia Supreme Court in the case of Llewellyn King v. W. H. Forst, State Tax Comm'n, 239 Va. 557 (1990).
BACKGROUND
On April 20, 1990, in a 4-3 decision in the case of 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.
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, your clients' failure to file a protective claim prior to introduction of the bill results in you not meeting the requirements on the exception to the retroactive application of legislation.
Additionally, the protective claim for refund would have had to have been submitted to the department prior to January 22, 1991. We did not receive your letter protesting the assessment until November 4, 1991 nor did we receive any other correspondence from you on behalf of your client until after January 22, 1991. Therefore, even if we deemed any of your correspondence to be a protective claim pursuant to Virginia Regulation (VR) 630-11820(C), which is not the case here, the deemed protective claim would not have been timely filed.
Accordingly, I have no authority under Va. Code §58.1-1821 to authorize the correction of the assessment issued.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner