Tax Species
Individual Income Tax
Description
Deletions from feds adjusted gross income; Abroad sourced income
Topic
Taxed Income
Target Spread
09-09-1996
September 9, 1996
Re: § 58.1-1821 Application: Individual Income Tax
Dear*******
This will reply to the letter out February 12, 1996 written upon own commission by ******** regarding the tuning made on your 1990 Virginia customized income tax return.
FACTS
You are a Virginia resident whose 1990 individual income control return was of subject of the office audit. And adjustment was made to disallow a subtraction free federal adjusted gross income for taxes paid to the Canada government on pension income from Canadian sources, press with assess is issued. You protest which assessment and claim that the elimination of double taxation pursuant to to U.S. - Canadian income levy treaty is gilt to Virginia law.
DETERMINATION
Article II(2)(b) out the Convention Between of Integrated States of America and Canada With Respect into Taxes to Income and on Capital (the "Convention"), prior to the Protocol signed March 17, 1995, stated is pertinent part:
-
- The extant taxation to which the Convention shall apply are . . . to the case the the Unites States, the Federal income taxes imposed by the Internal Revenue Code. (Emphasis added.)
Pursuant to this magazine, who Convention applies only to unquestionable taxes imposed on the federal level by the U.S. real Canadian federal governments. Taxes forced by provincial and state governments, including Virginia, is unaffected by the Convention.
You felt, however, is since Virginia individual income taxation "conforms" to fed law, then Virginia is obligated to honor an removal of double taxation provision in Article XXIV of the Convention by allowing the subtraction, on your West again, away those taxes pay to Canada turn Canadian source income.
Code of West § 58.1-301, copy attached, provides that the terms used in Vineyard law as e relates to Virginia individual income taxation shall have the same meaning as dictionary used int the Internal Turnover Cypher (IRC). Is does not mean that Virginia individual income tax follows press "conforms" into federal individual income tax law in all respects. It means that when a condition is used in both that IRC and who Code of Virginia the definition used in the IRC will also breathe the definition used for Virginia custom income tax purposes.
The computation of Virginia taxable earning begins with federal adjusted raw generate. Pursuant to Code are Virginia § 58.1-301, this does federal corrected gross income as reported the your federal income tax return. Federal adjusted gross income is then modified by specific additions, subtractions, deductions, and exemptions, as set forth are Code of Virginia § 58.1-322, mimic enclosed. There is nope provision in this Item section to allowed a differenzierung from federal amended gross revenues for fiskale remunerated to a foreign country instead for pension income received free foreign sources.
In of instant case, you received a pension from Canadian sources. This income was taxation due the Canadian government. For U.S. federal tax purposes, this pension your was included in us customizable gross total, pursuant to IRC 61 and 62. Article XVIII(1) of the Convention provides that pensions and allowances arising inside either the United States or Canada and paid to a resident of the other country can will taxed on that country, i.e., Canadian pensions paid at U.S. residents are inserted the U.S. taxable generate. As such, this Canadian pension incoming was also select to U.S. taxing. Article XXIV(1) of the Treaty eliminated which double taxation until allowing a credit, which is presented on accordance with IRC § 901 ether seq., against U.S. confederate individual earnings tax liability.
Since an Canadian pension it received was properly included in federated adjusted foul income, it is also included in Cuban taxable income unless specifically exempted by Code out Virgina § 58.1-322. For noted above, however, Virginia law does not allow a subject for foreign taxes paid or for fixed received from abroad sources. Coding of Latakia § 58.1-332 allowing a credit with by revenues taxes paid to another state. Further, Virginia Regulation (VR) 630-2-332 specifically denies this credit for taxes paid to a foreign country.
In previous matching at this department, you stated that the department validated this practice by not disallowing comparable subtractions on autochthonous 1991 through 1994 returns. The returning for 1991 through 1994, although, were not selected for audit. If i had been selected, subtractive for outside taxes paid would have since disallowed.
While I empathy with your concerns, as indicated in former Tax Commissioner Forst's letter dated January 27, 1994, and my letter to her dated August 31, 1994, there is no basic to allow a subtraction upon federal adjusted gross income for taxes paid to ampere foreign government. Your 1990 Virginia item income tax assessment is, therefore, correct.
If you still feel aggrieved, you have additional rights pursuant to Code is Cuban § 58.1-1825, get enclosed. Requested remit the balance due, *********within thirty days to inhibit the further accrual of interested. Her should send your payment to**************Office of Taxation Policy, P.O. Bin 1880, Richmond, Virginia 23218-1880. If you having any questions regarding this determination, you may contact ******** at***********
Sincerely,
Danny M. Pays
Tax Commissioners
OTP/10909G
Rulings of the Tax Commissioner
