Tax Type
Individual Income Tax
Description
Taxes paid by residents to other states; Income from foreign government
Topic
Credits
Date Issued
10-19-1994
October 19, 1994
Re: §58.1-1821 Application: Individual Income Tax
Dear*************
This will rely to your letter in which you protest the disallowance of an out-of-state credit for taxes you paid to a German state on German military pension income you received during taxable year 1992. 1 apologize for the delay in the department's formal response to your appeal, although a member of my staff has discussed this issue with you several times over the telephone.
FACTS
You are a resident of Virginia who receives military pension payments from the German government. The payments are subject to taxation by a German state. Your primary argument is that the tax paid to the German state is equivalent to the payment of taxes to a state located in the United States and, therefore, Virginia should allow you to claim an out-of-state credit for taxes paid the German state pursuant to Code of Virginia, §58.1-332.
DETERMINATION
Code of Virginia §58.1 -332 allows Virginia taxpayers to claim a credit for taxes paid to another state. Virginia Regulation (VR) 630-2-301 provides that "as used in VR 630-2-332, the word 'state' shall mean any state of the United States and the District of Columbia" (Emphasis added).
Based upon this regulation, which has been in effect since 1985 and which reflects the department's consistent and longstanding policy, the credit is inapplicable to income taxes paid to a state of the Federal Republic of Germany. Therefore, denial of the out-of-state credit for taxes paid to Germany was proper.
You also assert that the tax treaty between the United States and Germany should protect you from double taxation. The treaty only applies at the federal level. If your pension income was excluded from federal adjusted gross income under the treaty, the pension income would not be subject to Virginia taxation. However, because you reside in the United States you are required by the treaty to include the pension income on your federal return. Thus, the pension income was properly subject to Virginia taxation.
Although I understand your arguments, very clearly, this determination reflects long-standing agency policy and is consistent with the treatment of other similar claims regarding national and subnational taxes of other nations over many years. However, the penalty that was assessed will be waived, as will the interest that has accrued since your appeal. Please contact******if you have any further questions.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7417O
Rulings of the Tax Commissioner