Tax Type
Individual Income Tax
Description
California franchise and income taxes and Michigan single business tax
Topic
Credits
Date Issued
10-16-1995
October 16, 1995
Re: Request for Ruling: Individual Income Tax
Dear****************
This will reply to your letter of September 12, 1995, in which you submitted a request for a ruling concerning the Virginia credit for taxes paid to other states.
FACTS
You request a ruling as to whether the Virginia out-of-state tax credit is allowed with respect to the California Corporation Franchise or Income Tax, and the Michigan Single Business Tax. We have assumed that you are referring to a situation where an S Corporation has paid these taxes at the entity level.
DETERMINATION
Code of Virginia § 58.1-332 allows Virginia resident shareholders of an S corporation to claim a credit on their Virginia individual income tax return for income tax paid by an S corporation to another state. This section provides in part:
-
- [t]he amount of any state income tax paid by an electing small business corporation (S corporation) shall be deemed to have been paid by its individual shareholders in proportion to their ownership of the stock of such corporation. (Emphasis added.)
- [t]he amount of any state income tax paid by an electing small business corporation (S corporation) shall be deemed to have been paid by its individual shareholders in proportion to their ownership of the stock of such corporation. (Emphasis added.)
The California Corporate Income Tax applies to S corporations (or S corporations electing to be taxed as a C corporation) which receive income from California sources but which are not doing business in California. A shareholder in such a corporation would be eligible to claim the Virginia out-of-state tax credit.
An S corporation which does business in California is subject to the California Franchise Tax. A shareholder in an S corporation subject to the franchise tax would not be eligible for the Virginia out-of-state tax credit. See Public Document (P.D.) 95-175 (6/28/95), copy attached.
The Michigan Single Business Tax (MSBT) is levied on the privilege of doing business in Michigan. While it resembles a net income tax in several ways, it does not qualify for the Virginia out-of-state tax credit. See Public Document (P.D.) 94-313
(10/17/94), copy attached.
If you have any additional questions concerning this ruling, please call ********at**************.
Sincerely.
Danny M. Payne
Tax Commissioner
OTP/10257P
Rulings of the Tax Commissioner