Tax Type
Individual Income Tax
Description
Residency
Topic
Taxpayers
Date Issued
06-24-1999
June 24, 1999
Re: Request For Ruling: Individual Income Tax
Dear***
This will reply to your letter in which you request a ruling regarding the allowance of an out-of-state tax credit on behalf of your client (the "Taxpayer'). I apologize for the delay in responding.
FACTS
The Taxpayer is a resident of Virginia. In 1998, the Taxpayer sold undeveloped land in another state ("State A') and realized a gain. The Taxpayer will be required to file a 1998 nonresident tax return with State A and pay tax to State A on the gain. You are requesting a ruling as to whether the gain will be subject to taxation in Virginia and whether there is an available credit that the Taxpayer may take with respect to the taxes paid to State A.
RULING
The department has previously issued a ruling in a similar case. In Public Document ("P.D.') 86-61 (3/31/86), copy enclosed, the taxpayer was a resident of Virginia who sold undeveloped land in North Carolina. Because there was no indication that the gain from the sale of the land was business income, the department ruled that the taxpayer was not eligible to receive the out of state income credit for the year in question.
It is important to note that since P.D. 86-61 was issued, the provision granting the out of state tax credit was amended in 1994. The addition to the provision allows a credit for the gain from the sale of a principal residence. Section 58.1-332 of the Code of Virginia now reads that "[w]henever 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.'
For purposes of the credit, Title 23 of the Virginia Administrative Code (VAC) 10-110-221 defines both the term "earned income' and the term "business income.' The term "earned income' is defined by the regulation as:
I hope this ruling answers your question. Should you have more questions please feel free to contact ***** in the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/18168G
Re: Request For Ruling: Individual Income Tax
Dear***
This will reply to your letter in which you request a ruling regarding the allowance of an out-of-state tax credit on behalf of your client (the "Taxpayer'). I apologize for the delay in responding.
FACTS
The Taxpayer is a resident of Virginia. In 1998, the Taxpayer sold undeveloped land in another state ("State A') and realized a gain. The Taxpayer will be required to file a 1998 nonresident tax return with State A and pay tax to State A on the gain. You are requesting a ruling as to whether the gain will be subject to taxation in Virginia and whether there is an available credit that the Taxpayer may take with respect to the taxes paid to State A.
RULING
The department has previously issued a ruling in a similar case. In Public Document ("P.D.') 86-61 (3/31/86), copy enclosed, the taxpayer was a resident of Virginia who sold undeveloped land in North Carolina. Because there was no indication that the gain from the sale of the land was business income, the department ruled that the taxpayer was not eligible to receive the out of state income credit for the year in question.
It is important to note that since P.D. 86-61 was issued, the provision granting the out of state tax credit was amended in 1994. The addition to the provision allows a credit for the gain from the sale of a principal residence. Section 58.1-332 of the Code of Virginia now reads that "[w]henever 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.'
For purposes of the credit, Title 23 of the Virginia Administrative Code (VAC) 10-110-221 defines both the term "earned income' and the term "business income.' The term "earned income' is defined by the regulation as:
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- wages, salaries, or professional fees and other amounts received as compensation for professional services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. Earned income does not include interest or dividend income, capital gains, income from investments, or similar types of passive income.
- wages, salaries, or professional fees and other amounts received as compensation for professional services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. Earned income does not include interest or dividend income, capital gains, income from investments, or similar types of passive income.
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- 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.
- 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.
I hope this ruling answers your question. Should you have more questions please feel free to contact ***** in the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/18168G
Rulings of the Tax Commissioner