Tax Type
Individual Income Tax
Description
Michigan Source Business Income
Topic
Credits
Date Issued
08-31-1992
August 31, 1992
Re: Request for Ruling: Individual Income Tax
Dear********************
This will reply to your letter of April 22, 1992 in which you request a ruling that the Virginia resident partners (the "Partners") of a partnership with operations in various states, including Michigan (the "Partnership"), be entitled to a credit against their 1991 Virginia tax liability amount for taxes paid to Michigan on Michigan source business income pursuant to Virginia Code §58.1-332.
Facts
Virginia Code §58.1-332 provides Virginia residents with a credit against the amount of income tax owed to Virginia for income taxes paid to another state on earned or business income from sources located in such other state, subject to certain limitations. If a state allows Virginia residents a credit against taxes due to the other state for taxes paid to Virginia on the same income, the Virginia resident will not qualify for the Virginia out-of-state credit.
Ruling
Michigan allows nonresident taxpayers to claim a credit against their Michigan tax liability amount for income taxes paid to the nonresident's state of residency on Michigan source earned income. Michigan does not allow nonresident to claim an out-of-state credit on Michigan source business income.
To the extent that the Partnership's income earned in Michigan is business income, with respect to the Partners, the Partners are entitled to claim a credit against their Virginia tax liability amount since Michigan does not allow a credit to nonresident taxpayers for taxes paid to the nonresidents' state of residency on Michigan source business income.
Thus, I find that for taxable year 1991, the Partners are entitled to the Virginia out-of-state credit for taxes paid to Michigan on business income. However, due to Michigan's differing treatment of the out-of-state credit for earned and business income the department has determined that it is in the best interest of all parties involved to change its position regarding reciprocity with Michigan. For the current taxable year and for all future taxable years Virginia residents with Michigan source income will be entitled to the Virginia out-of-state credit for taxes paid to Michigan. Conversely, Michigan residents with Virginia source income will not be entitled to the Virginia out-of-state credit on any Virginia source income.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6108O
Rulings of the Tax Commissioner