Tax Type
Individual Income Tax
Description
Husband and wife filing separately; Earnings and proportional ownership
Topic
Taxable Income
Date Issued
08-25-1997
August 25, 1997
Re: § 58.1-1821 Application: Individual Income Tax
Dear****************
This replies to your letter in which your protest the assessment of individual income against you and your wife (the "Taxpayers") for the 1993 taxable year.
FACTS
The Taxpayers, a husband and wife, resided in Texas until they moved to Virginia in the fall of 1992. The wife managed a store in Texas until the week prior to her move to Virginia.
The store had financial difficulties and was not able to pay the wife her vacation compensation upon her resignation in 1992. Instead it was paid in separate installments in 1993. A Form W-2 was issued to the wife indicating that the vacation compensation was paid during 1993.
The Taxpayers reported the vacation compensation as part of their 1993 federal adjusted gross income. The Taxpayers then subtracted this amount on the 1993 Virginia return.
The Taxpayer contends that the subtraction is allowed by the Form 760 instruction booklet in its "other" column. In addition, the Taxpayers also request to know whether a charitable mileage deduction was valid and how to report interest and dividend income from jointly held investments when filing separately on a joint return.
DETERMINATION
Subtraction from Virginia taxable Income
The starting point for computing taxable income is federal adjusted gross income. The federal adjusted gross income of a Virginia resident, however, can be modified by the additions, subtractions, deductions, and exemptions specifically indicated in Code of Virginia § 58.1-322, copy enclosed, when computing Virginia taxable income.
The Taxpayers moved to Virginia in November of 1992. Therefore, you were both full time Virginia residents for calendar tax year 1993. Although your wife's vacation compensation was earned during 1992 in another state, it was included in the federal adjusted gross income while you were Virginia residents. For the taxable year 1993, Code of Virginia § 58.1-322 does not provide a subtraction for compensation earned in another state during a previous year. Such compensation is, therefore, not allowable as a subtraction on the Virginia income tax return when computing Virginia taxable income.
You rely on the 1993 instructions for preparing Form 760 which contains a section for subtractions from federal adjusted gross income. This form has a subsection titled "Other (Attach a schedule of explanation)." You state that the subtraction you took would be the type allowed under this subsection. Subtractions are limited to those specifically listed by the statute.
Virginia's method of preventing the taxation of income earned in another state is, typically, to allow an out-of-state tax credit. Code of Virginia § 58.1-322 provides relief when earned or business income is taxed by Virginia and another state in the same year. In the instant case, you did not pay any income tax on the vacation compensation earned in Texas, as Texas does not have a personal income tax. Thus, you would not be entitled to an out-of-state tax credit for the vacation compensation.
Charitable Mileage
Code of Virginia § 58.1-322(D)(1)(a) allows an individual to deduct the difference in the Virginia mileage rate ($0.18) and the federal rate ($0.12 in 1993). Thus, the $0.06 per mile additional deduction which you included for the charitable mileage was proper.
Reporting joint income when filing separately on a combined return
Code of Virginia § 58.1-324, copy enclosed, provides that a husband and wife who file separately on a joint return shall allocate income "to the spouse who earned the income or with respect to whose property the income is attributable." Thus, income from jointly held property should be allocated proportionally between the husband and wife according to the amount of the property they own. For example, if you and your wife each own 50% of a bond, you should each report half of the interest on your income tax return. If you own 75% of the bond and your wife owns 25% of the savings bond, then you should report 75% of the interest on your column of the tax return and your wife should report 25% of the income on her column on the tax return.
I hope that the above information is helpful to you. While I sympathize with your wife's situation, the department lacks the statutory authority to allow the 1993 subtraction. However, the charitable mileage deduction was properly reported on your return. No further action is needed on your part since your assessment for 1993 has been paid in full. You may call ******** at*************if you have any further questions.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11459B
Rulings of the Tax Commissioner