Tax Type
Individual Income Tax
Description
Taxes paid to other states
Topic
Credits
Date Issued
06-16-1997
June 16, 1997
Re: § 58.1-1824 Protective Claim: Individual Income Tax
Dear***************
This will reply to your letter in which you filed a protective claim for refund of Virginia individual income taxes on behalf of ********* (the "Taxpayers") for the taxable year of 1992. I apologize for the delay in responding to your request.
FACTS
The Taxpayers, Virginia residents, claimed an out-of-state tax credit on their original Virginia return for taxes paid to the state of New York. The tax due on the original return was paid. When the 1992 New York nonresident tax return was audited by New York Department of Taxation and Finance, an amended Virginia return was filed adjusting the out-of-credit tax credit. The department processed the amended return and issued a refund with interest.
During this time, the Taxpayer contested the New York tax audit. A protective claim for refund, pursuant to Code of Virginia § 58.1-1824, was filed with the department indicating that a second amended Virginia return would be filed within ninety days of the contested New York audit settlement. When the New York audit was settled, the second amended Virginia return was filed, which increased the out-of-state credit. Accordingly, you are requesting an additional refund.
DETERMINATION
Pursuant to Code of Virginia § 58.1-332, a person who pays income taxes to another state and to Virginia on earned or business income, may claim an out-of-state credit on the Virginia return for income taxes paid to the other state. Public Documents (P.D.) 94-91 (3/29/94) and P.D. 95-96 (5/1/95), copies enclosed, were issued to provide instructions on the method for computing the Virginia out-of-state credit for income taxes paid the state of New York. Generally, these public documents provide that, for purposes of computing the Virginia credit, the New York income percentage must be multiplied by the New York taxable income shown on the New York income tax return in order to determine the portion of New York taxable income attributable to New York source income. The resulting amount should have been used in computing the out-of-state tax credit on the Virginia return.
The Taxpayer's original and first amended returns were processed by the department. A review of the second amended return, however, shows a discrepancy in the computation of the out-of-state credit. According to the Taxpayers' New York Notice of Assessment Resolution, the New York taxable income and the New York income percentage amounts were clearly indicated. When computing the Virginia out-of-state credit, these specific amounts should have been used to arrive at the New York taxable income. In your computation of the out-of-state credit for the second amended return, however, you multiplied the New York taxable income by the New York income percentage from the first amended return.
Consequently, the New York taxable income that you used to compute the out-of-state credit on the second amended return was overstated. Instead of being overpaid on the second amended return, the Taxpayer has actually underpaid the tax liability. Our computations are enclosed. The department, therefore, erroneously issued a refund on the first amended return.
Code of Virginia § 58.1-312 provides that an erroneous refund is considered to be an underpayment of tax, which can be assessed by the department within two years from the date the erroneous refund was made. As two years have expired since the refund was issued on the first amended return, an assessment will not be issued.
Based on the information presented, the Taxpayers' protective claim for refund is denied. This denial does not prevent the Taxpayers from filing their own suit in a circuit court pursuant to Code of Virginia § 58.1-1825; however, suit must be filed within one year of the date of this letter. Should you have any questions regarding this matter, please contact ******** at *********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11219N
Rulings of the Tax Commissioner