Tax Type
Individual Income Tax
Description
U.S. Virgin Islands income; Application of out-of-state credit
Topic
Taxable Income
Date Issued
09-26-1994
September 26, 1994
Re: §58.1-1821 Application: Individual Income Tax
Dear**************
This will reply to your letter in which you seek correction of an individual income tax assessment issued against you any your wife for taxable year 1990. I apologize for the delay in responding to your request.
FACTS
You have received earnings from sources located within the U.S. Virgin Islands, which you excluded from income subject to Virginia taxation on your 1990 Virginia return. You excluded these earnings from Virginia taxable income based upon statements made by a department employee in 1988.
The department subsequently audited your 1990 Virginia tax return and disallowed the subtraction of U.S. Virgin Island earnings and issued the assessment which has given rise to this appeal. You assert that these earnings should not be subject to Virginia taxation since Federal tax is not paid on such income and based upon the department's prior assertion.
DETERMINATION
Pursuant to Va. Code §58.1-322, Virginia taxable income is defined as federal adjusted gross income, with certain specified modifications. As such, to the extent that income is included in federal adjusted gross income, it is subject to Virginia taxation unless specifically excluded. Because there is no specific subtraction or deduction in Va. Code §58.1-322 for earned income from foreign sources, the earnings are properly included in Virginia taxable income.
Although, the Code does provide a subtraction for certain types of income from foreign sources, earned income is not included in the types of income which qualify for the subtraction. Therefore, the subtraction you claimed for the U.S. Virgin Island earnings was properly disallowed.
You believe that the mechanism by which the U.S. Virgin Islands income tax is credited on the United States individual income tax return creates some sort of deduction for Virginia Islands earned income. However, the federal mechanism is merely a credit for taxes paid to the U.S. Virgin Islands pursuant to I.R.C. § 932. is not a deduction from federal adjusted gross income.
Virginia does allow taxpayers to claim a credit for taxes paid on income earned outside of Virginia, but this credit is limited to taxes paid to another state of the 50 United States. See VR 630-2-301 (copy enclosed). This credit is designed to alleviate the burden placed on taxpayers who are subject to taxation by Virginia and another state. However, the taxes paid to the U.S. Virgin Islands do not qualify for purposes of the Virginia credit.
Notwithstanding the decision reached herein, due to your reliance on the department's prior assertion and due to the delay in responding to your request, the interest portion of the assessment shall be abated in full provided the outstanding tax liability of*********is paid within 60 days of this letter.
Please do not hesitate to contact the department, if you have any further questions.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7689O
Rulings of the Tax Commissioner