Tax Type
Individual Income Tax
Description
Taxes paid by residents to other states; Capital gain on disposition of real property
Topic
Credits
Date Issued
07-09-1996
July 9, 1996
Re: § 58.1-1821 Application: Individual Income Tax
Dear**********************
This will reply to your letters of November 28, 1994, and January 4, 1996 concerning the 1991 Virginia individual income tax assessment of your clients ******** (the "Taxpayers").
FACTS
The Taxpayers are residents of Virginia. The husband is a partner in a real estate partnership located in Connecticut. The partnership was engaged in the business of owning, operating, and leasing certain real property located in Connecticut. In 1991, a portion of the partnership's income represented capital gains derived from the sale of real property located in Connecticut. The husband's distributive share of the gain was taxed on their Virginia and Connecticut tax returns. The Taxpayers also had other income that was received from Connecticut sources. An out-of-state tax credit was claimed on the 1991 Virginia return for the taxes paid to Connecticut on the capital gains and other income. The portion of the credit attributable to the capital gains, however, was disallowed by the department. You contend the Connecticut tax was an income tax; therefore, the credit claimed on your 1991 Virginia return should be allowed pursuant to Code of Virginia § 58.1--332. You are requesting that the assessment relating to the disallowance of the out-of--state credit be abated.
DETERMINATION
The facts of this case are similar to those presented in Public Document (P.D.) 96--128 (6/11/96), copy enclosed. A Virginia resident claimed an out-of-state tax credit on the 1989 Virginia individual income tax return for capital gains taxes paid to the state of Connecticut. The capital gains resulted from the sale of real estate located in Connecticut by a partnership, which was in the business of leasing real property. The Connecticut tax in 1989 was imposed on capital gains, dividends, and interest income. The public document indicated that, the Connecticut tax would be considered an income tax for purposes of computing the Virginia out-of-state credit since it was considered an income tax by the Connecticut Supreme Court and was not characterized by the Connecticut General Statute to be a franchise tax, license tax, or certain other taxes enumerated on Code of Virginia § 58.1-332.
In the instant case, the Taxpayers reported the capital gain and other types of income on the 1991 Connecticut income tax return. The tax attributable to the capital gain is considered to be an income tax, as indicated in P.D. 96-128, and may be used in the computation of the Virginia out-of-state tax credit pursuant to Code of Virginia § 58.1-332.
Based on this information, I find basis to allow the out-of-state credit claimed on the 1991 Virginia individual income tax return for the portion of the Connecticut tax attributable to capital gains received from the sale of real property located in Connecticut. The 1991 assessment will be abated in full. If further assistance is needed, please contact***** at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8854N
Rulings of the Tax Commissioner