Tax Type
Individual Income Tax
Description
Filers of combined state return and joint out-of-state return
Topic
Credits
Date Issued
10-26-1995
October 26, 1995
Re: § 58.1-1821 Application: Individual Income Tax
Dear*************:
This will reply to your letter of June 7, 1994, concerning the 1991 individual income tax assessment of your clients, *********** (the "Taxpayers"). I apologize for the delayed response.
FACTS
The Taxpayers filed a Virginia income tax return and claimed a credit for taxes paid to Georgia. Although only the husband received income from Georgia, the Taxpayer elected to file a joint nonresident income tax return with Georgia and benefited from using their combined personal exemptions and deductions.
When filing their Virginia resident return, the out-of-state credit was computed using only the taxable income of the husband. The department recomputed the credit using the taxable income of both Taxpayers as the credit was based on a jointly filed nonresident return. Consequently, an assessment was issued. The Taxpayers contend that the credit should be computed only on the husband's taxable income as the income from Georgia was attributable only to the husband.
DETERMINATION
Code of Virginia § 58.1-332 provides a credit on a Virginia resident return for income taxes paid on earned or business income derived from another state. The credit, however, is limited to the lower of the tax paid to another state or the Virginia tax prorated by the proportion of the income taxed by another state to the income taxed by Virginia. The computation of this credit limitation is based on the other state's nonresident return taken as a whole, which also includes the filing status, exemptions, and deductions claimed. When a joint nonresident return is filed by taxpayers where only one spouse has income from the other state, both taxpayers benefit from claiming their respective exemptions and deductions. In such instances, the policy of the department has been to compute the out-of-state credit based on the joint Virginia tax liabilities of both spouses when a joint nonresident return is filed with another state. As indicated in P.D. 95-261 (10/16/95), copy enclosed, this method of computing the credit fairly and equitably accounts for the inherent difference between the joint nonresident filing status and the Virginia combined filing status. Therefore, the out-of-state credit claimed for taxes paid to Georgia was correctly recomputed by the department.
Based on this information, there is no basis for adjusting the 1991 Virginia individual income tax assessment, which has been paid in full. If you have further questions, please contact **********at********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8386N
Rulings of the Tax Commissioner