Tax Type
Individual Income Tax
Description
Residency
Topic
Taxpayers
Date Issued
06-21-1999
June 21, 1999
Re: Sec. 58.1-1821 Application: Individual Income Tax
Dear***
This will reply to your letter concerning the 1992 Virginia individual income tax assessment against your clients ***** (the "Taxpayers'). I apologize for the delay in responding.
FACTS
In 1992, the Taxpayers claimed the out of state tax credit on their Virginia individual income tax return for taxes paid to two states ("States A & B') on gains from the sale of real property. The credit was denied by the department and the Taxpayers were assessed for additional income tax. The Taxpayers claim that the four parcels were used for business purposes and contest the assessment.
DETERMINATION
The Taxpayer has furnished the agreements for the sale of each parcel of property as well as various past federal income tax returns. The real property associated with the business was sold when operations were discontinued in 1980. The farm land was sold in sections. Those sales occurred in 1989, 1990, and 1992. Based on the information provided, the real property was used in a regular and continuing business. Accordingly, the gains in question qualify as business income and the tax paid on the income to States A & B would qualify for the credit for tax paid to another state.
The assessments for the 1992 taxable year will be abated. If you have any questions, you may contact ***** in the Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12342G
Re: Sec. 58.1-1821 Application: Individual Income Tax
Dear***
This will reply to your letter concerning the 1992 Virginia individual income tax assessment against your clients ***** (the "Taxpayers'). I apologize for the delay in responding.
FACTS
In 1992, the Taxpayers claimed the out of state tax credit on their Virginia individual income tax return for taxes paid to two states ("States A & B') on gains from the sale of real property. The credit was denied by the department and the Taxpayers were assessed for additional income tax. The Taxpayers claim that the four parcels were used for business purposes and contest the assessment.
DETERMINATION
-
- Code of Virginia Sec. 58.1-332 (A) provides:
Whenever a Virginia resident has become liable to another state for income tax on any earned or business income or any gain on the sale of a principal residence (within the meaning of Sec.1034 of the Internal Revenue Code) to the extent that such gain is included in federal adjusted gross income, for the taxable year, derived from sources outside the Commonwealth and subject to taxation under this chapter, the amount of such tax payable by him shall, upon proof of such payment, be credited on the taxpayer's return with the income tax so paid to the other state. (Emphasis added) *****
Virginia Regulation (VR) 630-2-332 defines "business income' as;
... income derived from an activity which constitutes a "business' for federal income tax purposes for which a federal Schedule C, E, or F must be filed, for example, a sole proprietorship, provided that if the business incurred a loss such loss would be allowable under federal law. Thus income from hobbies and other activities not engaged in primarily for profit is not business income even though a Schedule C, E, or F may be filed for such activities.
- Code of Virginia Sec. 58.1-332 (A) provides:
The Taxpayer has furnished the agreements for the sale of each parcel of property as well as various past federal income tax returns. The real property associated with the business was sold when operations were discontinued in 1980. The farm land was sold in sections. Those sales occurred in 1989, 1990, and 1992. Based on the information provided, the real property was used in a regular and continuing business. Accordingly, the gains in question qualify as business income and the tax paid on the income to States A & B would qualify for the credit for tax paid to another state.
The assessments for the 1992 taxable year will be abated. If you have any questions, you may contact ***** in the Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12342G
Rulings of the Tax Commissioner