Tax Type
Individual Income Tax
Description
Taxes paid by residents to other states; Taxes paid in previous year
Topic
Credits
Date Issued
10-20-1994
October 20, 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 1992 Virginia Individual Income Tax return*********(the "Taxpayer").
FACTS
The Taxpayer's mother, a domiciliary resident of another state, had an Individual Retirement Account (IRA). In addition, the mother also belonged to a qualified Keogh Plan. In prior years, the mother deducted IRA contributions for federal income tax purposes. However, since the mother also belonged to the qualified Keogh plan, the contributions were taxed in those years by the other state.
After the mother died, the Taxpayer, a Virginia resident and beneficiary of the estate, inherited and liquidated the IRA. The Taxpayer included the distribution as income on the 1992 federal and Virginia income tax returns. However, because the contributions were taxed by the mother's state of domicile when made, the Taxpayer subtracted the distribution on the Virginia return. The subtraction was disallowed and an assessment was issued. The Taxpayer contends that the same income has already been taxed by the other state on the mother's return, therefore, the subtraction should be allowed on the Taxpayer's Virginia 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 of a resident, is also subject to Virginia taxation. The federal adjusted gross income of a Virginia resident can be modified only by the additions, subtractions, deductions, and exemptions specifically indicated in Code of Virginia §58.1-322 when computing Virginia taxable income.
Although the IRA contributions may have been taxed by the mother's state of domicile when made, the IRA distribution was included in the Taxpayer's federal adjusted gross income as a Virginia resident. There is no provision in Code of Virginia §58.1-322 to modify the federal adjusted gross income by allowing a subtraction for the distribution received from an IRA that was taxed by another state in a prior tax year. Therefore, the distribution is not an allowable subtraction on the Virginia return when computing Virginia taxable income. As Virginia law is clear on this point, the department properly denied the Taxpayer's 1992 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 in prior years, 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 any questions regarding this determination, you may contact *************of my staff at**************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7997N
Rulings of the Tax Commissioner