Tax Type
Individual Income Tax
Description
Residency; Military pay
Topic
Taxpayers' Remedies
Date Issued
09-23-1994
September 23, 1994
Re: §58.1-1821 Application: Individual Income Tax
Dear****************
This will follow-up to the department's letter dated December 15, 1993 in which it upheld an individual income tax assessment issued against you (the "Taxpayer") on military separation pay received during taxable year 1991. You have requested that the department reconsider its position.
FACTS
The Taxpayer was discharged from the military on January 9, 1991. Although the Taxpayer relocated to Virginia and has remained in Virginia since his discharge, during the time the Taxpayer was in the military, he was a domiciliary resident of Pennsylvania. At the time of the Taxpayer's discharge, it was determined that he was entitled to receive separation pay.
The Taxpayer received the separation pay in December 1991 after he became a Virginia resident. The Taxpayer deducted the separation pay from the amount of federal adjusted gross income reported to the Commonwealth based on his belief that the such income should be treated as other active duty pay. The department issued an assessment against the Taxpayer for Virginia income taxes due on the excluded separation pay.
DETERMINATION
Pursuant to Va. Code §58.1-322, Virginia taxable income of a resident is defined as federal adjusted gross income, with certain specified modifications. As such, to the extent that income is included in federal taxable income, it is subject to Virginia taxation unless specifically excluded. However, Title 50 of United States Code §574 (the "Act", copy enclosed) provides that military personnel maintain their state of domicile in regard to the taxation of military pay received even if an individual is stationed or resides outside of the domiciliary state.
While the Commonwealth is prohibited from taxing the active duty income for all soldiers and sailors who are not residents of the Commonwealth, once a individual changes his domicile to Virginia, the Commonwealth can and does impose the income tax on all of the individual's income including military pay. Although it is uncertain whether the Act still applied to separation pay received after discharge, Virginia's taxation of the Taxpayer's separation pay is not in violation of the Act. The Act permits a state to tax the military income of a resident.
Sometime in early 1991 and soon after his discharge from the military, the Taxpayer established Virginia as his state of residency. It was not until December 1991 when the Taxpayer received his military separation pay. Whether or not the separation pay is to be treated as active duty income, the Taxpayer received the income after he became a Virginia resident; therefore, the payment was properly taxed by the Commonwealth.
Based upon the determination reached herein, the assessment is correct. Your bill will be adjusted by the payment you made on August 28, 1994 and the revised assessment will be sent to you under separate cover. Additionally, due to the delay in responding to your redetermination request, the interest that has accrued from the date of your letter (November 9, 1993) until the date of this letter shall be abated.
Please do not hesitate to contact the department, if you have any further questions or wish to set up a payment plan. If you have questions, please contact ******at ********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP78670
Rulings of the Tax Commissioner