Tax Type
Individual Income Tax
Description
Out-of-State Tax Credits; Michigan partnership
Topic
Credits
Partnerships
Date Issued
08-31-1992
August 31, 1992
Re: Request for Ruling: Individual Income Tax
Virginia Resident
Dear*****************
This will reply to your letter of April 29, 1992 in which you request a ruling regarding the application of the Virginia out-of-state tax credit, under Va. Code §58.1-332, to certain partners who reside in Virginia (the "partners") of the law firm of********************* (the "Partnership") for income taxes paid to the state of Michigan on income the Partnership earned in Michigan (the "Michigan Income").
FACTS
During the taxable year that ended December 31, 1991, the Partnership earned Michigan Income. The Partners applied for a credit to the amount of income tax due to Michigan for the income taxes paid to Virginia on the Michigan Income. Michigan denied the Partners a credit. Michigan only permits a nonresident taxpayer to claim a credit for income taxes paid to the nonresident's state of residency on Michigan source earned income. Michigan does not allow a nonresident a credit for the amount of tax due to Michigan on Michigan source business income.
RULING
Virginia Code §58.1-332 provides residents of Virginia 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 cannot also qualify for the Virginia credit.
Each Partner was required to pay income tax to Michigan on his or her share of the Michigan Income. Although Michigan permits Virginia residents to credit the amount of tax due to Virginia on Michigan source earned income, it does not allow a similar credit for Michigan source business income. The Michigan Income was business income to each of the Partners. Since the Partners were not entitled to a credit against their Michigan income tax liability amount for the income taxes paid to Virginia, the Partners are entitled to a credit against their Virginia tax liability amount for the income taxes paid to Michigan.
Each Partner is, therefore, entitled to a credit against his Virginia tax liability amount for the income taxes paid to Michigan on the Michigan Income for the tax year ended December 31, 1991.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6132O
Rulings of the Tax Commissioner