Tax Type
Individual Income Tax
Description
Persons required to file; Partnerships
Topic
Returns and Payments
Date Issued
04-25-1994
April 25, 1994
Re: Request for Ruling:
Dear**********
This will reply to your letter of March 3, 1993 in which you request a ruling concerning the ability of*************(the "Taxpayer"), a partnership that files a unified nonresident Virginia return, to amend prior year unified returns in order to exclude those partners who are residents of Maryland. I apologize for the delay in responding.
FACTS
Pursuant to Virginia Regulation (VR) 630-4-391(C)(2), in 1991 the Taxpayer obtained permission to file a unified return on behalf of its partners. Accordingly, the Taxpayer filed a unified return for the 1989, 1990, and 1991 taxable years.
The unified return contained individual partners who were residents of Maryland. After filing the unified returns, the Taxpayer discovered that the State of Maryland would not grant a credit to the Maryland residents for their portion of the Virginia taxes paid by the Taxpayer. You have requested permission to file amended unified returns for 1989, 1990, and 1991, excluding the Maryland resident's pro rata share of the partnership's income. The Maryland residents would file nonresident returns individually.
RULING
A unified return is an administrative convenience which allows partners to pay their respective Virginia tax at the entity level. The need for filing a separate Virginia return for each partner is also eliminated. It is a privilege extended by the department to taxpayers, at the taxpayer's election. The unified return does not decrease the tax liability of any partner, nor is it intended to do so. In fact, the tax paid on a unified return may exceed the cumulative tax which would be paid if individual Virginia returns were filed. Each entity must decide if the convenience afforded justifies the potential increase in tax.
In the instant case, the department granted permission for the Taxpayer to file a unified return subject to a number of standard conditions, including the following:
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- All nonresident partners without other income from Virginia sources must elect to join in the filing of such a return and a statement to such effect will be included in the return.
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- The Virginia income tax return will be computed at the rates specified under Virginia Code §58.1-320 on Partnership's income attributable to the nonresident without benefit of itemized deductions, standard deductions, personal exemptions or credit for income taxes paid to states of residence (emphasis added).
During the taxable years at issue, Maryland did not allow its residents to claim a credit for taxes paid to Virginia. Instead, Maryland residents filing Virginia nonresident returns received a credit on the Virginia return. In effect, Maryland residents only paid Virginia the differential between the tax rates of the two states. However, the department does not allow this credit to be claimed on a unified return. In fact, in Public Document 87-34 (2/20/87), copy attached, the department specifically rejected this type of computation. (Note: For post 1991 taxable years Maryland has changed its tax laws, and this situation will no longer exist.)
The department permits the filing of unified partnership returns for the convenience of nonresident partners. This convenience eliminates the need to separate nonresident returns for each partner. A unified return can sometimes result in the 1099 of certain benefits that could otherwise be obtained through returns. However, the convenience to the nonresident partners usually outweighs the benefits which may be lost.
The department imposes certain conditions in exchange for the convenience of unified return filing. It is the department's duty and responsibility to collect the proper amount of tax due from each taxpayer. Because a unified return may combine the Virginia taxable income for hundreds of nonresident taxpayers, the department has had to establish conditions for unified return filing which ensure the proper determination, administration, and collection of Virginia's tax. These conditions require, among other things, that all nonresident partners without other income from Virginia sources be included in the unified return, and that certain benefits be forfeited. These conditions are uniformly required of all unified returns, and are a necessary part of the department's administration of theses returns.
The conditions to which the Taxpayer agreed in filing its unified return required the inclusion of all nonresident partners without other income from Virginia sources, and clearly provided for a loss of certain benefits, including the credits for income taxes paid to states of residence. This was a choice the Taxpayers made at the time of electing a unified return. You now ask for permission to amend the unified return to remove selected nonresident partners so as to claim one of the benefits otherwise denied.
The department must balance the convenience which unified filing provides to nonresident partners against the administrative burden which would be imposed if unified returns were amended to add or remove partners at any time. I find that the conditions which the department has imposed for unified filing are fairly and consistently applied. Because the issue for which you seek relief was one of the conditions the Taxpayer agreed to by filing a unified return, I find no alternative but to deny your request.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7285M
Rulings of the Tax Commissioner