Tax Type
Individual Income Tax
Description
Subtractions from federal adjusted gross income; IRA contributions
Topic
Taxable Income
Date Issued
09-30-1994
September 30, 1994
Re: §58.1-1821 Application: Individual Income Tax
Dear***********
This will reply to your letter concerning an assessment resulting from the disallowance of a subtraction claimed on the 1991 Virginia Individual Income Tax Return of*********(the "Taxpayers").
FACTS
While residents of another state, the Taxpayers made contributions into an Individual Retirement Account (IRA). Though the contributions were deductible for federal income tax purposes, the contributions were taxed by the other state. The Taxpayers moved to Virginia in 1990 and received IRA distributions in 1991. The distributions were included as income on the federal and Virginia income tax returns. However, because the contributions were taxed in the other state in previous years, the Taxpayers subtracted the distributions on the Virginia return. Through the department's compliance program, the subtraction was disallowed and an assessment was issued. The Taxpayer contends that the same income is being taxed by both Virginia and the other state, therefore, Virginia should allow the subtraction on the income tax return.
DETERMINATION
Code of Virginia §58.1-301 provides that Virginia individual income taxation conforms with that of the Internal Revenue Code. Therefore, income included in federal adjusted gross income, is also subject to Virginia taxation. However, the federal adjusted gross income of a Virginia resident can be modified by the additions, subtractions, deductions, and exemptions specifically indicated in Code of Virginia §58.1-322 when computing the Virginia taxable income.
Although the Taxpayer's IRA contributions were taxed by the other state in previous years, the distributions from the IRA were included in the federal adjusted gross income while they were Virginia residents. Code of Virginia §58.1-322 does not provide a subtraction for distributions received from an IRA that was taxed by another state in a previous year. Therefore, such distributions are not allowable as a subtraction on the Virginia income tax return when computing Virginia taxable income. As Virginia law is clear on this point, the department properly denied the Taxpayer's 1991 subtraction, and the assessment was correctly issued.
Virginia's current method of preventing "double taxation" is to allow an out-of-state tax credit. However, Code of Virginia § 58.1-332 only provides relief when the same "earned or business" income is taxed by Virginia and another state in the same taxable year. In situations when the tax is paid to another state over a period of years prior to the taxpayer becoming a Virginia resident, as stated above, current Virginia law provides no relief.
While I sympathize with the Taxpayers' situation, the department lacks the statutory authority to allow the deduction claimed by the Taxpayers. Legislation has been considered in the past to address situations like this, but a law change has never been enacted.
Also, it should be noted that Virginia's position is consistent with the federal treatment and with the method most other states use. If you have further questions on this matter, you may contact*********of my staff at*********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8125N
Rulings of the Tax Commissioner