Document Number
98-133
Tax Type
Individual Income Tax
Description
Additions to Federal Adjusted Gross Income
Topic
Taxable Income
Date Issued
08-19-1998
August 19, 1998

Re: Request for Ruling: Individual Income Tax, Local License Fees

Dear *****

The Commissioner of the Revenue for ***** asked me to reply to your letter of June 8, 1998, requesting a ruling on the tax status of Federal Reserve Notes for state and local tax purposes. I apologize for the delay in responding to your letter.

FACTS

You indicate that Federal Reserve Notes, known as United States currency or money, are obligations of the United States exempt from taxation by states and localities according to federal statutes. You specifically reference Title 12 of the United States Code (USC) § 411, 18 USC § 8, and 31 USC § 3124. You believe it is illegal for Virginia to impose an income tax on Federal Reserve Notes. Likewise, you believe that it is illegal for any county or city in Virginia to require you to pay for County/City decals for vehicles with Federal Reserve Notes you are paid by your employer. You are requesting information on whether your position is correct and whether the filing of Virginia income tax returns or payments for County/City decals are required. Additionally, you request an official response that you may duplicate.

RULING

Code of Virginia § 58.1-301, copy enclosed, provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code unless a different meaning is clearly required.

For individual income tax purposes, Virginia "conforms' to federal law in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income included in FAGI is subject to taxation by Virginia. § 61(a)(1) of the Internal Revenue Code (IRC) clearly sets forth certain types of income, such as wages, salaries, and ***** compensation for personal services. Income included in the FAGI of a Virginia resident is subject to taxation by Virginia unless it is specifically exempt as a Virginia modification, pursuant to Code of Virginia § 58.1-322.
    • Code of Virginia § 58.1-322(C)(1) provides, in pertinent part, a subtraction for:

      Income derived from obligations, or on the sale or exchange of obligations, of the United States and on obligations or securities of any authority, commission or instrumentality of the United States to the extent exempt from state income taxes under the laws of the United States including, but not limited to, stocks, bonds, treasury bills, and treasury notes ....

To the extent, therefore, that income from obligations or securities of the United States is included in FAGI, it may be subtracted for Virginia income tax purposes in computing Virginia taxable income. This Virginia statute codifies the exempt status of income from obligations of the United States set forth in 31 USC § 3124(a), which provides, in pertinent part, that:
    • Stocks and obligations of the Unites States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax ... (Emphasis added.)
The types of stocks and obligations of the United States subject to this exemption are those typically purchased by investors as interest-bearing instruments. While Federal Reserve Notes may be stated to be obligations of the United States in 12 USC § 411 and 18 USC § 8, they are not interest-bearing, and it has been held that they are not federal obligations within the meaning of the exemption from state taxation for federal obligations. Instead, like other types of United States currency, Federal Reserve Notes are legal tender for all debts, public charges, taxes, and dues. (See Richey v. Indiana Department of State Revenue, Ind. Tax 1994, 634 N.E.2d 1375, copy enclosed.) Consequently, only obligations and income from obligations of the United States that are interest-bearing are exempt from Virginia income tax by both federal and Virginia law. Further, there is no federal or Virginia law that exempts Federal Reserve Notes from Virginia income tax.

Code of Virginia § 46.2-752, copy enclosed, is the enabling statute that authorizes counties, cities, and towns to levy a tax or license fee on motor vehicles. As a result, ***** County imposes a license fee on motor vehicles, the payment of which is validated by the issuance of a decal to be affixed to the vehicle. Persons are subject to the license fee unless they own certain vehicles where a sticker may issued free of charge in accordance with this section, or they own certain vehicles on which counties, cities, or towns may not impose a motor vehicle tax or license fee in accordance with Code of Virginia

§ 46.2-755, copy enclosed.
Title 12 USC § 412, copy enclosed, provides that Federal Reserve Notes are the measure of value in the monetary system of the United States. Additionally, 31 USC § 5103 provides, in pertinent part, that:
    • United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. (Emphasis added.)
It is evident, therefore, that Federal Reserve Notes are moneys that may be used to pay any tax liability including County/City decals issued by a Virginia locality.

Based on this information, you are required to file an annual Virginia individual income tax return on income paid by your employer. Additionally, Federal Reserve Notes may be also used to pay license fees for County/City decals required by any county, city, or town located in Virginia.

Code of Virginia § 58.1-204, copy enclosed, states that the department is required to publish regulations, written rulings, or other interpretations of Virginia law which are of interest to taxpayers and practitioners. The department employes various methods to disseminate ruling letters. The instant ruling letter reflects the department's policy on the issues you raised. It will be published by the department but will exclude confidential information in accordance with Code of Virginia § 58.1-3, copy enclosed. Any duplicates that you make of this letter would be at your discretion.

I hope that the above information will be beneficial to you.

Sincerely,



Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46