Tax Type
Individual Income Tax
Description
Taxes paid by residents to other states; Erroneous payment to another state
Topic
Credits
Date Issued
05-15-1996
May 15, 1996
Re: § 58.1-1821 Application: Individual Income Tax
Dear****************
This will reply to your letter of November 6, 1995, concerning the disallowance of an out-of-state tax credit claimed on your 1993 Virginia individual income tax return and the resulting assessment.
FACTS
During 1993 when you were a Virginia resident, you received retirement income from work previously performed at a university located in the state of Colorado. This income was reported on your Virginia resident income tax return and your Colorado nonresident income tax return. You claimed an out-of-state credit on the Virginia return for taxes paid to Colorado. The department, through its audit program, disallowed the credit and issued an assessment, which you have paid. As the income is being taxed by both states, you contend that Virginia should allow the out-of-state credit and refund the amount paid on the assessment.
DETERMINATION
We have contacted the Colorado Department of Revenue and were informed that the state of Colorado is not a source income tax state. They do not, therefore, tax the retirement income of nonresidents who were previously domiciled in that state. It appears that you have erroneously reported your retirement income on the Colorado nonresident tax return. The department does not allow an out-of-state tax credit on the Virginia return, pursuant to Code of Virginia § 58.1-332, for taxes erroneously paid to another state. As a suggestion, you can contact the Colorado Department of Revenue to inquire about amending your Colorado income tax return to remove the retirement income that you reported. Once the refund has been issued by the state of Colorado, the double taxation attributable to the retirement income will be nullified. As there would be no Colorado tax liability on the retirement income, there would be no need to claim an out-of-state tax credit on the Virginia return.
You expressed concern about the difficulty of recruiting a scientist to Virginia when their retirement income received from other states would be subject to taxation by Virginia and the other state. In the past when a state would tax the retirement income of nonresidents, there was a possibility that the retirement income would be taxed by both the original state at its source and the state in which the taxpayer is presently domiciled. This inequity, however, was corrected by recent federal legislation. Effective January 1, 1996, 4 USC § 114 was enacted to limit the taxation of certain retirement benefits received by previous residents of a state (copy enclosed). As a result of this legislation, the future possibility that a scientist would be subject to taxation on retirement income by the former state of residence has been eliminated.
Based on the information provided, the 1993 Virginia income tax assessment was issued correctly, and there is no basis to adjust your account or refund the amount paid against the assessment. If additional information is needed, please contact************at ****** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10726N
Rulings of the Tax Commissioner