Tax Type
Individual Income Tax
Description
Taxation of nonresidents; Lease income received by West Virginia residents
Topic
Taxpayers' Remedies
Date Issued
08-06-1996
August 6, 1996
Re: § 58.1-1821 Application: Individual Income Tax
Dear************************
This will reply to your letter dated July 3, 1996, in which you seek correction of individual income tax assessments for your clients, **************** (the "Taxpayers") for the taxable years 1991-1994.
FACTS
The Taxpayers are West Virginia residents who own real and tangible personal property located in Virginia. The Taxpayers lease this property to a corporation in which they are the sole stockholders and directors. All income attributable to the leasing activity is reported on the Taxpayers' West Virginia individual income tax return. No Virginia individual income tax returns reporting this income were filed for the years in question. You maintain that these assessments are erroneous based on your contention that the instructions for the Virginia nonresident return are misleading and do not accurately represent the corresponding statutory provisions. Accordingly, you seek the abatement of all assessments for the taxable years 1991-1994.
DETERMINATION
Code of Virginia § 58.1-302 states in pertinent part:
-
- Income and deductions from Virginia sources includes items of income, gain, loss and deduction attributable to the ownership of any interest in real or tangible personal property in Virginia; a business, trade, profession, or occupation carried on in Virginia.
Pursuant to this statute, if an individual has an ownership interest in real property in Virginia and receives income as a result of that interest, or receives income from a business activity located in Virginia, then that income is considered received from Virginia sources. According to the statute and the facts supplied, the Taxpayers' leasing of property located in Virginia constitutes Virginia source income. Virginia Regulation (VR) 630-2-332 defines the term business income as "income derived from an activity...for which a federal Schedule C, E, or F must be filed." Income from the leasing of real property is reported on Schedule E as a business activity. Such income is considered to be income from Virginia sources if the realty is located in Virginia.
You also state that, based on a reasonable reading of the instructions, the Taxpayers are eligible for the state of residence tax credit for the taxable years 1991-1993. The 1991-1994 instructions do not list West Virginia as one of those states whose residents may claim a state of residence tax credit on Virginia Form 763. This credit was specifically rescinded for West Virginia residents by a modification to the West Virginia/Virginia reciprocal income tax agreement, effective for taxable years beginning after December 31, 1990. I suggest you contact the West Virginia Department of Tax and Revenue to determine if any credit for taxes paid to Virginia may be claimed on an amended West Virginia return.
Based on the foregoing, there is no basis to abate the assessments for the taxable years 1991-1994. If within 60 days from the date of this letter all returns are filed and correct payment remitted, all interest subsequent to the date of the appeal will be waived.
Please forward all correspondence to the attention of ***************at the Office of Tax Policy, Virginia Department of Taxation, P.O. Box 1880, Richmond, Virginia, 23218-1880. If you have any questions, you may contact him at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11411G
Rulings of the Tax Commissioner