Tax Type
Individual Income Tax
Description
Out-of-state tax credit; Statute of limitations
Topic
Credits
Statute of Limitations
Date Issued
10-05-1993
October 5, 1993
Re: §58.1-1821 Application: Individual Income Taxes
Dear**********
This will reply to your letters of January 13, 1993 and June 14, 1993 in which you seek a refund for taxes paid to the Commonwealth by your clients, ********** (the "Taxpayers") for taxable year 1988.
FACTS
The Taxpayers, residents of California, timely filed a Virginia nonresident income tax return for taxable year 1988 paying tax on the Virginia source income. The Taxpayers claimed a credit for the taxes paid to Virginia on their California tax return filed for taxable year 1988.
California has recently disallowed the credit they claimed for taxes paid to Virginia and assessed the Taxpayers for failing to pay 1988 taxes on the Virginia source income. The Taxpayers have paid the assessment and are now seeking a refund of the taxes paid to the Commonwealth.
DETERMINATION
Va.Code §58.1-332(B) allows a nonresident individual with Virginia source income to claim a credit against the amount of Virginia income taxes owed for income taxes paid to the individual's state of residence. The credit is allowed only if the state of residence has a reciprocal law which would allow a Virginia resident to claim a credit for income taxes owed to such other state on income earned from sources therefrom.
During taxable year 1988, Virginia allowed residents of California to claim an out-of-state tax credit against taxes owed to Virginia on Virginia source income. This was clearly disclosed in the
instructions for the 1988 Virginia Nonresident Form 763 as well as Virginia Regulation (VR) 630-2-332(C)(1).
The Taxpayers earned income from Virginia sources in 1988 and paid taxes on such income. Since California is a reciprocity state and the amount of taxes owed to California on the Virginia source income equaled the amount of taxes due to Virginia, the Taxpayers should have claimed a credit on the Virginia nonresident return for the taxes paid to California.
The Taxpayers would have normally been entitled to a refund of the taxes incorrectly paid to Virginia. However, their application for a refund of the taxes paid to Virginia was made after the expiration of the applicable statute of limitations. Va. Code §58.1-1823 allows taxpayers three years from the date that an original return was due to file an amended return with the department to claim a refund for taxes incorrectly paid to the Commonwealth. This three-year period limits the time in which a nonresident taxpayer can claim a refund of taxes paid to the Commonwealth pursuant to Va. Code §58.1-332.
The Taxpayers' 1988 nonresident return was originally due on May 1, 1989. Three years from that date was May 1, 1992. Had the Taxpayers filed the amended return prior to May 1, 1992, they would have been entitled to claim a refund for the taxes paid to Virginia. Unfortunately, this was not the case. As Tax Commissioner, I do not have the statutory authority to accept amended returns that are filed after the expiration of the three year limitation period. Your request for a refund must, therefore, be denied.
In your supplementary letter, you cite P.D. 87-100 as holding for the proposition that "whenever" a nonresident becomes liable to pay taxes to another state, Virginia will allow a credit. Again this assertion ignores the limitation period set forth in Va. Code §58.1-1823. Additionally, the taxpayer in P.D. 87-100 filed his application for refund within the three-year period.
Additionally, you argue that had the situation been reversed California would allow a refund due to its four-year statute of limitations. In actuality, however, Virginia would not have been able to assess the tax, as it employs a uniform three-year statute of limitation both for refunds and assessments. Generally, only if a return had not been filed could Virginia have pursued this type of matter past the normal three-year statute.
Further, you cite Va. Code §58.1-1827 as a basis for allowing the Taxpayers relief from the expiration of the limitation period.
However, the ability to use Va. Code §58.1-1827 to override Va. Code §58.1-1823 is only granted to the courts. Furthermore, it is implicit in the statute that double assessments be issued by the same taxing authority (see Va. Code §58.1-1820, which defines "assessment" as used in Va. Code §58.1-1827 as self assessments made by the Taxpayer and written assessments made by the Department of Taxation) which is clearly not the case here. I cannot justify issuing a refund to the Taxpayers based upon this Code provision.
Finally, in your supplementary letter you assert that since Va. Code §58.1-1823 allows taxpayers an additional 90 days from the date of the final determination of an adjustment of federal income tax liability to file an amended return with Virginia, the Commonwealth should also allow the same 90 days for taxpayers to file amended returns with Virginia based upon another state's final determination of taxpayers' liability. However, the Code section specifically limits the 90 day period to federal adjustments since Virginia taxable income is based upon the amount of federal adjusted gross income a taxpayer reports to the Internal Revenue Service.
As a conformity state, the amount of income taxable to Virginia is based upon federal income. It is not contingent upon another state's taxing scheme, nor another state's determination of a taxpayer's liability. Virginia allows taxpayers 90 days from the date of the federal adjustment to file an amended Virginia return since the federal change directly impacts the amount of income subject to Virginia taxation. Unlike the taxpayer in P.D. 92-227 who had a federal tax adjustment, the Taxpayers had a change that resulted from a California tax adjustment. Therefore, the 90 day adjustment period is not available to the Taxpayers.
Moreover, the Taxpayers could have preserved their rights to claim a refund from Virginia by filing a protective claim pursuant to Va. Code §58.1-1824 pending the outcome of the California audit.
Accordingly, I find no basis to issue the refund requested.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/66390
Rulings of the Tax Commissioner