96-74
Response
May 3, 1996
Request
Roger
O. Tew, Commissioner
Utah
State Tax Commission
Heber
M. Wells Office Bldg., 160 E. 300 South
Salt
Lake City, UT 84134
Dear
Mr. Tew:
The
purpose of this letter is to request information necessary for the application
of Section 58.1-332, Code of Virginia, relating to credit for individual income
tax paid to another state or to the District of Columbia. A copy of the
applicable Virginia Code section and the 1995 income tax instructions booklets
for residents and nonresidents are enclosed for your examination.
Section
58.1-332 of the Code of Virginia is reciprocal legislation, which relates to
allowance of an individual income tax credit on the Virginia nonresident
individual income tax return for net individual income taxes paid to another
state or the District of Columbia on:
* earned or business income; and
* any gain on the sale of a principal residence (within the meaning
of Section 1034 of the Internal Revenue Code) to the extent that such gain is
included in federal adjusted gross income,
For
example, if a state practices reciprocity with Virginia, it will allow an
out-of-state tax credit to Virginia residents who file with that state on wages
(earned income) from sources within that state. Virginia, in turn, will allow a
similar credit to the other state's residents who file a Virginia nonresident
income tax return to report wages from Virginia sources. If a state does not
practice reciprocity with Virginia, the Virginia resident will be allowed a
credit on the Virginia return for income taxes paid by a Virginia resident to
the non-reciprocity state.
Prior
to taxable year 1994, if another state granted a credit which was limited to
certain types of income, e.g., only earned income, the nonresident credit was
generally not allowed. Beginning with taxable year 1994, the other state must
also allow a credit for the gain on the sale of a principal residence (within the
meaning of Section 1034 of the Internal Revenue Code) to the extent that such
gain is included in federal adjusted gross income.
Please
answer the questions on the attached page and return it to me by May 17, 1996,
so that we may determine if there have been any changes which would affect the
application of this credit in your state for the taxable year 1996. My fax
number is provided for your convenience should you prefer to fax your response.
Any
printed material or rules or regulations that you may have on the subject of
tax credits allowed residents and nonresidents will be most helpful to us.
Sincerely,
XXXXX
RE:
Credit for Taxes Paid to Another State
Dear
Sir:
We are responding to your letter
dated April 6, 1996.
A Utah resident anticipating a
credit for taxes paid to another state should file form TC- 40. Income reportable to Utah may be subject to
another state's income tax when the income was earned for services performed in
another state. Also, business income
and the gain on sale of personal residence, when included in the individual's
federal adjusted gross income (FAGI), is reportable to Utah and may be subject
to another state's tax as well.
Business and other income not
included in the individual's FAGI has no relevance to the credit for taxes paid
to another state. Only another state's income
tax is allowed as a credit. Other
taxes, fees, levies or assessments are not allowed.
A part-year resident or non-resident
completes form TC-40NR. On this form,
income is allocated between Utah and non-Utah sources. This allocation largely eliminates the
necessity of computing a credit for tax paid to another state - no schedule is
provided to take the credit. However,
the credit can be added when the taxpayer includes the required
documentation. Please refer to
administrative rule R865-9I-3 enclosed.
Sincerely,
XXXXX