Tax Type
Individual Income Tax
Description
Delaware nonresident income tax
Topic
Credits
Date Issued
06-12-1995
June 12, 1995
Re: §58.1-1821 Application: Individual Income Tax
Dear*********************
This will reply to your letter of March 29, 1995, in which you protest the reduction of a credit for income tax paid to Delaware claimed by your client, *********** (the "Taxpayer"), for taxable year 1992.
FACTS
The Taxpayer, a Virginia resident, had income from Delaware sources during 1992. The Taxpayer filed a Delaware nonresident return and paid income tax to that state. Because the Taxpayer's Delaware source income was of the type that qualifies for a credit against Virginia income tax liability under Code of Virginia §58.1 -332(A), the Taxpayer computed and claimed this credit for 1992.
The Taxpayer's Virginia return was subject to an office audit by the department and the credit for Delaware taxes paid was adjusted, resulting in an assessment. You believe the Taxpayer's 1992 Virginia return was correct as filed and hereby request relief.
DETERMINATION
For taxable years beginning on or after January 1, 1992, Delaware legislation changed the method by which the income of a nonresident individual would be taxed. The new law changed Delaware's tax formula for nonresidents, requiring the nonresident to first compute both Delaware taxable income and income tax as if the nonresident were in fact a resident. The tax computed as if a resident is converted to a "nonresident tax" by applying a fraction, the numerator of which is a "modified" adjusted gross income from Delaware sources, and the denominator of which is a "modified" federal adjusted gross income. Under Delaware law, both Delaware adjusted gross income and federal adjusted gross income can be increased or decreased by certain statutory addition and subtraction modifications.
The department has ruled on two previous occasions on the method in which a Virginia resident will compute a credit for income tax paid to a state which determines the tax on a nonresident in a manner similar to Delaware. See Public Documents ("P.D.") 95-96 (5/1/95) and 94-91 (3/29/94), copies attached, dealing with New York taxes. In the instant case, the Taxpayer's credit for income tax paid to Delaware was adjusted in accordance with the department's written policy.
An analysis of the Delaware and New York nonresident individual income tax formulas shows these computations to be the same in all material respects. Both computations require the nonresident to compute taxable income and tax as if they were a resident. Both computations then convert a resident tax to a nonresident tax by applying a proportion that references nonresident income to total income. Therefore, the department finds its written policy as described in the aforementioned rulings to be appropriate for a Virginia resident in computing a credit for income tax paid to Delaware.
Accordingly, the additional assessment for 1992 individual income taxes must be upheld. Attached is a schedule indicating the tax liability plus interest accrued through the date of this letter. The assessment should be paid in full within 30 days to avoid accrual of additional interest. Please forward your payment to the Office of Tax Policy, the Virginia Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282. Should you have additional questions regarding this matter, please contact*******.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/9528L
Rulings of the Tax Commissioner