Tax Type
Individual Income Tax
Description
Taxes paid by residents to other states; Credit for taxes paid to Minnesota
Topic
Credits
Date Issued
11-08-1996
November 8,1996
Re: 58.1-1821 Application: Individual Income Tax
Dear*********
This will reply to your letters of August 15, 1996 and October 23, 1996, in which you protest the reduction of a credit for income tax paid to Minnesota claimed by you and your wife (the "Taxpayers") for taxable year 1993.
FACTS
The Taxpayers are Virginia residents who had income from Minnesota sources during taxable year 1993. The Taxpayers filed a Minnesota return and paid income tax to that state as a nonresident. Because the Minnesota source income was of the type that qualifies for a credit against Virginia income tax liability under Code of Virginia §58.1-332(A), the Taxpayers computed and claimed an out-of-state tax credit.
The Taxpayers' return was subject to an office audit, and the credit for Minnesota taxes paid was adjusted, resulting in an assessment. The Taxpayers believe the 1993 Virginia return was correct as filed and hereby request relief.
DETERMINATION
Code of Virginia §58.1-332(A), copy enclosed, limits the amount of credit allowed for income tax paid to another state on earned or business income. The credit is the lessor of the amount of tax actually paid to the other state (the "tentative credit"), or the amount of Virginia income tax that would have been imposed on the taxpayer if the income earned or derived in the other state had been earned or derived in Virginia (the "limitation"). In order to compute the limitation, a taxpayer must determine the amount of income subject to tax by the other state.
The department has previously ruled concerning the proper method for computing a credit for tax paid to Minnesota. In this ruling, the department distinguishes between the income of a nonresident that is actually subject to tax by Minnesota versus how Minnesota determines the rates at which a nonresident's income will be taxed. See Public Document ("P.D.") 95-174 (6/27/95), copy enclosed.
In P.D. 95-174, the taxpayer computed the credit for income tax paid to Minnesota in the same manner in which the Taxpayers advocate. Because the Minnesota nonresident return requires the taxpayer to compute the taxable income and tax as if the nonresident were in fact a resident, a special adjustment is required when computing the allowable out-of-state tax credit.
Pursuant to Virginia Regulation (VR) 630-2-312, copy enclosed, the department has three years from the due date of the return to assess any tax deficiency. The department is also bound by the provisions of Code of Virginia § 58.1-1812, copy enclosed, which mandates the application of interest to any assessment of tax.
Accordingly, your request for relief must be denied. The allowable credit for tax paid to Minnesota has been computed in accordance with the department's written policy and as reflected on the enclosed schedule. A review of your account shows the assessment was previously paid in full. Should you have any questions regarding this matter, please contact ******of my staff at ********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11556M
Rulings of the Tax Commissioner