Tax Type
Individual Income Tax
Description
Nonresident with intangible income from Virginia S corporation
Topic
Taxable Income
Date Issued
03-05-1993
March 5, 1993
Re: Request for Ruling: Individual Income Tax
Dear****************
This will reply to your letter of November 13, 1992 in which you request a ruling regarding the applicability of the Virginia individual income tax to nonresidents who receive certain intangible income earned by a Virginia S corporation.
In this case, the S corporation has operations within Virginia and earns intangible income. The income earned by the corporation will be passed through to its shareholders. You have asked us to determine whether a nonresident shareholder would have to report the earnings to Virginia since the income earned was intangible.
RULING
Pursuant to Va. Code §58.1-325, a nonresident shareholder of a Virginia S corporation is required to include in the income he reports to Virginia his pro rata share of S corporation income. Virginia taxes nonresidents on the income they earn from Virginia sources. Va. Code §58.1-302 includes in the definition of Virginia source income, intangible income to the extent that such income is from property employed in a business carried on in Virginia.
Although the income will retain its intangible character when it is passed through to the nonresident shareholder, the fact that the income is passed through to a nonresident will not result in the income avoiding the imposition of Virginia tax. Since the intangible income is earned from a business operation conducted in Virginia (the S Corporation), it is Virginia source income within the meaning of Va. Code §58.1-302.
The nonresident shareholder is required to file a return with Virginia and include the intangible income in the income subject to taxation by Virginia.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/65460
Rulings of the Tax Commissioner