Tax Type
Individual Income Tax
Description
Protective claim based on King v. Forst; Refunds of tax
Topic
Payment and Refund
Returns/Payments/Records
Date Issued
08-17-1992
August 17, 1992
Re: Protective Claim: Individual Income Tax
Dear****************
This will reply to your letter of October 12, 1990 in which you filed a protective claim for refund for taxable years 1987, 1988, and 1989. The protective claim for refund was based 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' 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
I find that your protective claim for refund for taxable years 1987, 1988, and 1989 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.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner