Document Number
95-126
Tax Type
Individual Income Tax
Description
Taxes paid to other states; Capital gain on disposition of real property
Topic
Credits
Date Issued
05-19-1995
May 19, 1995



Re: §58.1-1821 Application: Individual Income Tax



Dear****************

This will reply to your letter concerning the disallowance of an out-of-state credit claimed by your client, ***********(the "Taxpayer") on an amended 1990 Virginia Individual Income Tax Return.
FACTS

In 1986, while a resident of another state ("State A"), the Taxpayer sold under an installment method a parcel of land that was located in a third state ("State B"). After moving to Virginia in 1990 and becoming a resident, the balance due on the installment sale was collected. The 1990 Virginia part-year income tax return was filed and included the capital gain from the sale of the land. However, as the Taxpayer was a resident of the State A when the installment sale transaction occurred, State A required that the Taxpayer report the capital gain in her final part-year income tax return.

Upon filing the revised State A return to include the capital gain, the Taxpayer also requested a refund from Virginia by filing an amended Virginia income tax return and claiming an out of-state credit for taxes paid to the State A. Virginia disallowed the out-of-state credit. The Taxpayer contends that by disallowing the credit, income tax is being paid to both states on the same capital gain. The Taxpayer is requesting relief from this double taxing situation by either being allowed to claim the out-of-state credit on the Virginia amended return or being allowed to reduce Virginia taxable income by the amount of the capital gain.
DETERMINATION

Code of Virginia § 58.1-332 provides that the out-of-state credit is allowed on a Virginia resident return for taxes paid on earned or business income derived from another state. A capital gain received from the sale of a parcel of land held by an individual for investment purposes is typically not considered earned or business income; therefore, such capital gain does not qualify for the out-of state tax credit. As a result, the Taxpayer is not eligible to claim the Virginia credit for the taxes paid to State A.

Code of Virginia § 58.1-301 further provides that federal adjusted gross income is the starting point for computation of Virginia taxable income. Therefore, any income included in federal adjusted gross income, is also subject to Virginia taxation. In addition, the federal adjusted gross income of a Virginia resident may be modified only by the additions, subtractions, deductions, and exemptions specifically indicated in Code of Virginia §58.1-322 when computing the Virginia taxable income. There are no provisions in Code of Virginia §58.1-322 to allow a subtraction for a capital gain received by a Virginia resident from sources in another state. Therefore, the capital gain realized by the Taxpayer from the sale of the property located in State B which is included in federal adjusted gross income is subject to Virginia taxation.

While I sympathize with your situation, the department has no choice under Virginia law but to deny the Taxpayer's claim. Based upon the facts of this case, however, it may be appropriate to pursue relief under New York's law and administrative procedures. If other assistance is needed, please do not hesitate to contact the department.
                        • Sincerely,


                          Danny M. Payne
                          Tax Commissioner


OTP/7975N

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46