Tax Type
Individual Income Tax
Description
Subtractions from federal adjusted gross income; Foreign source income; Salary and other allowances
Topic
Royalties
Taxable Income
Date Issued
01-17-1997
January 17, 1997
Re: § 58.1-1821 Application: Individual Income Tax
Dear**********:
This will respond to your letter in which you applied for a review and ruling on whether certain income taken as a subtraction on the 1992 and 1993 individual income tax returns of *******(the "Taxpayers") constituted foreign source income within the definitions provided in Code of Virginia § 58.1-302.
FACTS
The Taxpayers filed their 1992 and 1993 Virginia individual income tax returns and took subtractions for certain income as foreign source income (FSI). The department examined these returns and disallowed the subtractions claimed by the taxpayers resulting in the assessment of additional tax for both years. The disallowed subtractions represented salary, hardship allowance, maintenance and quarters allowance. The Taxpayers contest the department's assessments and contend that this income qualifies as FSI under Code of Virginia § 58.1-302 from "Services performed without the United States".
RULING
The Taxpayers contend that the income in question was derived from "Services performed without the United States" and therefore it constitutes a subtraction on the Virginia return under Code of Virginia § 58.1-302.
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- Code of Virginia 58.1-302 defines foreign source income, in pertinent part, as:
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- Rents, royalties, license and technical fees from property located or services performed without the United States or from any interest in such property, including rents, royalties, or fees for the use of or privilege of using without the United States any patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like properties.
The department has previously ruled that these words cannot be taken out of context to create a subtraction for income earned from outside the United States for any service. See Public Documents (P.D.s) 86-209 and 92-44, (11/3/86 and 4/27/92, respectively), copies enclosed. These words are incorporated in a subsection dealing with passive income from the rental of real estate and with income from patents, copy rights, and other intangible property, and do not stand alone as a separate FSI subtraction.
In the instant case, the income in question is not from "Rents, royalties, license, and technical fees from property located or services performed without the United States....". Instead, the income was attributable to salary and living expenses. As such, the income does not qualify as FSI eligible for the Virginia subtraction.
Pursuant to this longstanding written policy, the department finds that the assessments were correct as made and no refund is due. If you have any questions regarding this ruling, please contact **** at *******.
Sincerely
Danny M. Payne
Tax Commissioner
OTP/11876P
Rulings of the Tax Commissioner