Could a service member claim Virginia's National Guard pay subtraction without proof of Virginia Guard service?

Subject

Ineligible subtraction.

Plain-English summary

A married couple claimed Virginia's subtraction for National Guard pay received by the husband during 2012. Virginia disallowed the military-related subtractions and assessed additional tax and interest.

The subtraction covered active or inactive service in the Virginia National Guard, subject to a cap of the lesser of pay for 39 service days or $3,000 and a rank limit of captain (O3) or below. Pay from federal active or reserve units or another state's Guard did not qualify.

The husband's W-2 suggested that the income came from a Department of Defense reserve unit. Membership in a reserve component can include service other than the Virginia National Guard, and the other records did not clearly establish Virginia Guard membership.

Virginia upheld the assessment on the existing evidence but gave the couple 30 days to provide military orders or other objective proof of qualifying Virginia National Guard service. It would adjust the assessment if warranted.

Citations and references

• Va. Code §§ 58.1-301 and 58.1-322 C 11.
• 32 U.S.C. § 101.
• Howell's Motor Freight, Inc. v. Virginia Department of Taxation, Law No. 82-0846 (Va. Cir. Ct. Oct. 27, 1983).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-129

Original ruling text

June 22, 2016

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * (the “Taxpayers”) for the taxable year ended December 31, 2012.

FACTS

The Taxpayers, a husband and wife, filed a 2012 Virginia individual income tax return and claimed several subtractions for income related to military service. Under review, the Department disallowed all of the military subtractions and issued an assessment for additional tax and interest. The Taxpayers appeal the denial of the National Guard pay subtraction, contending the husband was a member of the National Guard in 2012.

DETERMINATION

Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Va. Code will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.

Virginia Code § 58.1-322 C 11 allows a subtraction of wages or salaries received by any person for active and inactive service in the National Guard of the Commonwealth of Virginia. The amount of the subtraction is the lesser of the amount of National Guard income received not to exceed the amount of income from 39 calendar days of service, or $3,000. Further, National Guard personnel may only claim the subtraction if their rank is captain (O3) and below. Income derived from service in the active or reserve units of the military or National Guard units from other states, including the District of Columbia, are ineligible for this subtraction.

The Taxpayers contend the husband is a member of the National Guard and served on active duty during the 2012 taxable year. Information provided on the Form W-2, however, suggests the service member's income derived from the Reserve Units of the Department of Defense.

By reason of their character as legislative grants, statutes relating to deductions and subtractions allowable in computing income and credits allowed against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority. See Howell's Motor Freight, Inc., et al. v. Virginia Department of Taxation , Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983).

32 U.S.C. §101 defines Active Guard and Reserve as members of a reserve component who serve on active duty pursuant to section 12301(d) of U.S.C. § 10, or any member of the Army National Guard or Air National Guard serving full time National Guard Duty pursuant to U.S.C. 32 (502)(f) and performing Active Guard and Reserve duty. 32 U.S.C. §101 defines the Army National Guard and the Air National Guard as a reserve component organized in part by militia of several State and Territories and whose officers are appointed under the 16 th Clause of Section 8, Article I of The Constitution of the United States . Thus, salaries or wages paid to a member of the Reserve Component of the military may include a service member who was not a member of Virginia's National Guard.

The information provided fails to clearly show the husband was a member of the National Guard of the Commonwealth of Virginia during 2012. Accordingly, the Department must uphold the assessment as issued.

The Taxpayers, however, will be granted one last opportunity to provide copies of the husband's military orders or other evidence to show he served in Virginia's National Guard or other objective information to support their claim. The documentation must be provided within 30 days from the date of this letter and should be mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: *. Once reviewed, the assessment will be adjusted as warranted. If the information is not received within the allotted time, the Department's assessment will be considered to be correct.

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/1-6220956459.D