99-108 | Virginia Tax

Tax Type

Individual Income Tax

Description

Taxation of nonresidents; Compensation

Topic

Taxpayers' Remedies

Date Issued

05-12-1999

May 12, 1999

Re: Request for a Ruling: Individual Income Tax

This will reply to your letter in which you request a ruling on behalf of your client (the "Taxpayer') in regard to the treatment of compensation received after the Taxpayer's employment ended. I apologize for the delay in responding.

FACTS

The Taxpayer terminated his employment in Virginia in December 1997 and moved to another state. In early 1998, the Taxpayer established domicile in the new state. At the time of the termination, the Virginia employer owed the Taxpayer unpaid vacation, a final paycheck and a negotiated severance package. All of these amounts were paid to the Taxpayer after his change in domicile.

After establishing the new domicile, the Taxpayer received final salary, severance and accrued vacation payments from the Virginia employer. The Taxpayer requests a ruling as to whether these payments received after his change in domicile are subject to Virginia income tax.

RULING

Title 23 of the Virginia Administrative Code (VAC) 10-110-180, copy enclosed provides that:

- [T]he Virginia taxable income of a nonresident individual . . . is Virginia taxable income computed as a resident multiplied by the ratio of net income, gain, loss and deductions from Virginia sources to net income, gain, loss and deductions from all sources. . . "Net income, gain, loss and deductions from Virginia sources' means that attributable to property within Virginia, or to the conduct of a trade. business, occupation or profession within Virginia.

Pursuant to Code of Virginia § 58.1-301, terms used in the Virginia income tax statutes have the same meaning as used in the Internal Revenue Code. Thus, it is necessary to look to federal law to determine whether a final paycheck, vacation pay and severance pay is income for purposes of Virginia taxation. Federal Tax Regulation § 1.61-2(a), copy enclosed, provides that wages and termination pay are income subject to taxation. Federal Tax Regulation § 1.61-21(a), copy enclosed, provides that employer provided vacations are income subject to taxation. The Taxpayer's final paycheck, vacation pay and negotiated settlement are all attributable to the conduct of an occupation within Virginia. Thus, the Taxpayer's final paycheck, vacation pay and negotiated settlement are all Virginia source income subject to Virginia income tax, provided that the Taxpayer's Virginia adjusted gross income exceeds a certain threshold as described by Code of Virginia § 58.1-321.

Accordingly, the Taxpayer is required to file a nonresident Virginia income tax return for the 1997 taxable year and report his final paycheck, vacation pay and negotiated settlement as Virginia source income. I have enclosed a 1997 Virginia nonresident income tax return and its instructions for your convenience. If you have any questions about this ruling you may contact * * * * * at * * * * *.

Sincerely,

Danny Payne
Tax Commissioner

Rulings of the Tax Commissioner