Tax Type
Individual Income Tax
Description
Out-of-state tax credit; New York nonresident return; Request alternative method for credit calculation
Topic
Credits
Date Issued
04-08-1994
April 8, 1994
RE: §58.1-1821 Application: Individual Income Tax
Dear*************
This will reply to your letter in which you request the correction of an assessment issued against you and your wife concerning the calculation of the Virginia out-of-state tax credit on income you earned from New York sources.
Facts
During taxable years 1989 and 1990, you earned income from New York. Your calculation of the Virginia out-of-state tax credit for taxes paid on such income was made using a method inconsistent with the method used by the department. You request, among other things, special permission to use an alternative method of calculating the Virginia out-of-state tax credit.
Determination
Your protest primarily focuses on the department's calculation of the out-of-state tax credit for income taxes you paid to New York on income earned during taxable years 1989 and 1990. In a recent ruling (P.D. 94-91, March 29, 1994, copy enclosed), the department sets forth the methodology it uses to calculate the Virginia out--of-state credit for Virginia residents who earn income from New York sources.
The special calculation is needed to isolate the amount of income subject to taxation by New York since the New York nonresident tax return does not identify this amount on the return. The allocation percentage on the New York return, which is applied to the total tax to determine the tax due to New York as a nonresident, is applied to the amount of taxable income on the New York return to isolate the portion of the New York source income that would be taxable as a nonresident (the "Calculated New York Nonresident Taxable Income").
The tax that would be due to Virginia on the Calculated New York Nonresident Taxable Income then must be compared to the tax paid to New York. The lesser of the two is the amount of the out-of-state credit. The department correctly used this method to calculate the amount of your out-of-state credit for taxable years 1989 and 1990. Thus, your request to use an alternative method is denied.
Additionally, you assert that the department incorrectly combined yours and your wife's Virginia taxable income for purposes of determining the amount of income earned from New York sources on your Virginia return. New York allows married nonresident taxpayers, with only one nonresident spouse who earned New York source income, the option of filing either a joint or separate return.
When married taxpayers file a joint nonresident New York return and only one of the taxpayers has New York source income, an additional modification is required since the Calculated New York Nonresident Taxable Income includes not only both spouses' income, but also each spouses' share of deductions, personal exemptions, and exclusions. This additional modification entails the combining of both spouses' Virginia taxable income amounts, which is then divided into the Calculated New York Nonresident Taxable Income for purposes of determining the percentage of income earned from New York sources. In the event that a married couple does not file a joint New York return and only one spouse has New York source income, this additional modification is not required.
Since you and your wife filed joint New York nonresident tax returns for taxable years 1989 and 1990, the additional modification is required. Therefore, the assessments are correct as issued. However, the penalties imposed upon the 1990 assessment will be abated based upon the facts and circumstances involved in your case and upon the authority granted to the Tax Commissioner pursuant to Va. Code §58.1-105.
You shall shortly receive a revised bill, with updated interest.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/72550
Rulings of the Tax Commissioner