Tax Type
Individual Income Tax
Description
Federal retirement benefits; Income, interest earned while nonresident
Topic
Taxable Income
Date Issued
09-03-1996
September 3, 1996
Re: § 58.1-1821 Application: Individual Income Tax
Dear**********
This will reply to your letter received by the department on April 24, 1996, in which you request a refund of Virginia individual income tax for the 1995 taxable year.
FACTS
You are a Virginia resident who retired from the federal government in 1995. Upon retirement, you withdrew funds from a tax-deferred savings plan. These funds were properly included in federal adjusted gross income and were reported on your 1995 Virginia individual income tax return.
Subsequently, you filed an amended Virginia return in which you subtracted the income and accumulated interest that were contributed and earned while you were not a resident of Virginia from federal adjusted gross income. You contend that you are obligated to pay Virginia income tax on only that portion of the retirement funds which were contributed and earned while you were a resident of Virginia.
DETERMINATION
Code of Virginia § 58.1-301, copy enclosed, provides that the terms used in Virginia law as it relates to Virginia individual income taxation shall have the same meaning as terms used in the Internal Revenue Code. The computation of Virginia taxable income begins with federal adjusted gross, which pursuant to this Code section, means federal adjusted gross income as reported on your federal income tax return. Federal adjusted gross income is then modified by specific additions, subtractions, deductions, and exemptions, as set forth in Code of Virginia § 58.1-322, copy enclosed. There is no provision in this Code section to allow a subtraction of income from a tax-deferred saving plan where such income was contributed in a prior year when the taxpayer was not a resident of Virginia.
In the instant case, contributions made to a tax-deferred savings plan are typically not subject to federal or state taxation in the year of the contribution. Instead, the taxation of such contribution is subject to federal and state taxation in the year distributions are made from the savings plan. It does not appear that the contributions which you made to the tax-deferred saving plan were subject to taxation in the states in which you previously were a resident.
You may be interested to know, however, that effective for taxable years beginning on and after January 1, 1996, Code of Virginia § 58.1-322 was amended to provide a subtraction on the Virginia return for the income received from certain pensions and retirement plans where the contributions to these plans were taxed in prior years by another state, but not by the federal government. Taxpayers affected by such situations will be able to avoid taxation by another state and Virginia on the same income received from such plans.
Based on the information presented, there is no basis to allow the subtraction on your 1995 Virginia income tax return for income received from a tax-deferred saving plan; therefore, your request for refund must be denied. A review of your records indicates that you paid all tax due as assessed on your original Virginia individual income tax return. Accordingly, no further action is required on your part.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11170G
Rulings of the Tax Commissioner