Could a Virginia part-year resident claim credit for New York tax on wages earned after moving to Virginia while continuing to work in New York?

Subject

New York tax credit depended on proving nonresidency

Plain-English summary

Virginia made the New York tax credit depend on whether the taxpayer was still a New York resident after becoming domiciled in Virginia. She had moved to Virginia on July 1, 2012 but continued working in New York.

A Virginia part-year resident generally cannot claim the other-state credit for a period when she was also a resident of the other state. If she was a New York nonresident during the Virginia-resident portion of the year, however, she could be eligible for credit on New York-source wages.

Because the record did not establish whether she maintained a New York abode or otherwise met New York's residency rules, Virginia required supporting documentation within 60 days. Without it, the assessment would be upheld and collection would resume.

What this means for you

• Earning wages in another state is not the same as proving nonresidency there.
• A midyear move can create overlapping-residency questions under each state's separate rules.
• Keep evidence of abode, day count, domicile, and the period covered by the other state's return.
• The credit is conditional here; the ruling did not finally determine the taxpayer's New York residence.

Citations and references

• Va. Code §§ 58.1-303 A and 58.1-332.
• N.Y. Tax Law § 605(b); 20 NYCRR § 105.20(c).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-156

Original ruling text

August 28, 2014

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you request correction of the individual income tax assessment issued to your client, * (the "Taxpayer") for the taxable year ending December 31, 2012. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer moved into and established domicile in Virginia as of July 1, 2012, but continued to be employed in New York. The Taxpayer filed a part-year/nonresident income tax return with New York and a Virginia part-year income tax return for the period of time she resided in Virginia. Because the Taxpayer was a resident of Virginia from July to December of 2012, she claimed a tax credit for the income tax paid to New York . Under review, the Department denied the credit and issued an assessment for additional tax and interest. The Taxpayer appeals the assessment, contending she claimed the tax credit because the majority of her income was derived from New York sources.

DETERMINATION

Virginia Code § 58.1-303 A provides that a person who becomes a resident of Virginia is subject to taxation during the period of Virginia residency. When an individual maintains a place of abode in Virginia for more than 183 days, but less than the full year, they may file as a part-year resident of Virginia. See Public Document (P.D.) 89-160 (5/22/1989).

In addition, Va. Code 58.1-303 prohibits an individual that files as a part-year resident from claiming the out-of-state tax credit under Va. Code § 58.1-332 on income tax payable to Virginia for any part of the taxable year during which they were a domiciliary or actual resident of another state. This is because Virginia part-year residents are taxed only on the income earned while residing in Virginia. However, the prohibition is limited to income earned from a state in which a taxpayer was a domiciliary or actual resident while they were also a part-year resident of Virginia. If a part-year Virginia resident earns income taxable in another state in which they were not considered to be a resident, they may be entitled to an out-of-state tax credit on their Virginia return.

Because the Taxpayer continued her employment in New York, it is unclear as to whether the Taxpayer would have been considered to be resident of New York for the 2012 taxable year even after she established her domicile in Virginia. Under N.Y. Tax Law § 605(b), a taxpayer will be considered to be a resident of New York if they are domiciled in New York or they maintain a permanent place of abode in New York and spend more than 183 days in the state during the tax year. For purpose of determining days spent in New York, presence within the state for any part of a day constitutes a day unless certain exceptions apply. See NY Comp. Code R. & Regs. 20 §105.20(c).

Based on Department's review of New York's statutes and regulations, the Taxpayer could be considered to be a resident of New York during the period she was domiciled in Virginia, especially if she maintained a permanent place of abode in New York in order to facilitate her employment there. If the Taxpayer continued to be a resident of New York even after she established her domicile in Virginia, she would not be entitled to claim a tax credit under Va. Code § 58.1-332. She may, however, be eligible for the out-of-state tax credit if she was considered to be a nonresident of New York for the period between July 1 and December 31, 2012.

Accordingly, because there is a question as to where the Taxpayer resided while working for the New York employer, the Taxpayer must show she was not a resident of New York during the portion of the year she was domiciled in Virginia in order to claim the credit. Supporting documentation should be sent to Virginia Department of Taxation, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: *, within 60 days of the date of this letter. If the requested documentation is not received within the prescribed time period, the Department's assessment will be upheld and collection actions will resume.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5435809013.D