Virginia State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Virginia, with full citations and the original source on every page.
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Could Virginia assess additional 2005 and 2006 income tax after the ordinary three-year period when taxpayers did not report IRS changes?
Yes. Virginia's ordinary three-year assessment limit did not protect the taxpayers because they failed to file amended Virginia returns within one year after the IRS made final changes. Under Va. Code…
Could a taxpayer reverse a paid Virginia assessment without providing records substantiating the itemized deductions claimed?
Not yet. Virginia upheld the assessment because the taxpayer supplied no records supporting the itemized deductions despite repeated requests, and the assessment was presumed correct. The Department a…
Could an estate beneficiary transfer unused Virginia Land Preservation Tax Credits after both donor-credit holders died?
No. The donors could claim the credit on their final income tax returns, but any unused carryover was extinguished at death. Virginia read Va. Code § 58.1-513(C) to require lifetime acts by the credit…
Did the military-spouse income-tax exemption apply when the spouse moved to Virginia before marriage and had a different domicile from the service member?
No. Virginia found that the spouse established Virginia domicile when she moved there in June 2007, before marrying the service member in January 2009. The service member retained State A domicile. Be…
Could estate beneficiaries subtract lump-sum survivor annuity death benefits from Virginia taxable income?
Yes. The payments qualified because each came from an annuity contract between the deceased annuitant and an insurance company, was paid to a beneficiary in a lump sum, and was subject to federal inco…
Did federal protection for multistate vessel pilots prevent Virginia tax on a nonresident pilot's partnership income from work in Virginia waters?
No. The federal rule protected compensation for piloting duties from tax outside the pilot's residence state, but the pilot association reported its fees less expenses as partnership ordinary income. …
Did an employee abandon Virginia domicile by moving to another state for work while keeping a Virginia home, vehicles, and driver's license?
No. Although the taxpayer moved and rented an apartment in State A, he kept his Virginia house and vehicle registrations and renewed a Virginia driver's license in 2007. Virginia found that he had not…
Was a taxpayer an actual Virginia resident in 2005, making her State A retirement income taxable, when evidence indicated more than 183 Virginia days?
Yes on the existing record. Virginia concluded that the taxpayer maintained a Virginia abode for more than 183 days in 2005, making her an actual resident even if State A domicile continued. Her feder…
Could an individual Virginia S-corporation shareholder subtract DISC dividends passed through from the S corporation?
No. Virginia's corporate statute allowed a qualifying DISC-dividend subtraction in computing corporate taxable income, but the pass-through rule limited an individual owner to modifications authorized…
Could a Virginia resident filing separately claim dependent exemptions allocated by agreement with a nonresident servicemember spouse?
Yes. Although the couple filed a joint federal return, Virginia law allowed them to allocate federal dependent exemptions between their separate Virginia returns as they mutually agreed. Because they …
Did Virginia allow a 2006 college-savings deduction when checks were mailed in December 2006 but posted to the accounts in January 2007?
Yes. The checks were mailed on December 29, 2006 for unconditional delivery to the institution administering the children's Virginia college savings accounts, although they posted January 3, 2007. The…
Could Virginia refund a federal-refund offset after the taxpayer proved she was not a 2002 Virginia resident but filed after every refund deadline?
No. Virginia accepted that the taxpayer was domiciled elsewhere in 2002 and abated the unpaid balance, but her May 2010 refund request came more than two years after the February 2008 offset payment a…
Was a legally separated husband an actual or domiciliary Virginia resident in 2006 and 2007 despite a Virginia business, license, vehicles, and family home?
No. Evidence rebutted the auditor's credit-card-based day count and showed the husband spent only 68 days in Virginia in 2006 and 72 in 2007, so he was not an actual resident. The full circumstances a…
Was a husband working and living overseas a Virginia domiciliary resident in 2006 because his family, home, and driver's license were in Virginia?
No. Although the husband had a Virginia home used by his family and had obtained and renewed a Virginia driver's license, the Department found he had established domicile in the foreign country and ha…
Did an amended S-corporation return and explanatory note adequately report an IRS increase to a shareholder's federal adjusted gross income?
No. The taxpayer amended the S-corporation return but did not file an amended individual return or clearly explain how the IRS adjustment changed his federal adjusted gross income. The Department foun…
Did a one-year job, rented housing, and bar admission in another state establish that an individual had abandoned his Virginia domicile for 2006?
No. The taxpayer's one-year employment, temporary living arrangements, retained Virginia driver's license and vehicle registration, use of a Virginia address on tax returns, and return to Virginia sho…
Was an individual still domiciled in Virginia for 2007 when he had moved to another state and only a Virginia address on federal information statements linked him to Virginia?
No. The taxpayer had moved back to State A before 2007, established a permanent home and driver's license there, kept his business interests there, and spent most of the year there. Because the only 2…
Did a six-month filing extension move the three-year Virginia refund deadline when the taxpayer did not file by the extended due date?
No. Under the rules applicable to the 2004 return, the extension became void when the taxpayer failed to file by November 1, 2005. The three-year refund period therefore ran from the original statutor…
Did spending more than 183 days in another state, claiming its homestead exemption, and registering to vote there end a couple's Virginia domicile?
No. Although the couple spent most of each year in State A, claimed its homestead exemption, registered to vote there, and obtained State A identification cards, they kept Virginia driver's licenses, …
How did Virginia apply its per-account college-savings deduction to multiple VEST portfolios, CollegeAmerica funds, rollovers, and a missed prior-year deduction?
Virginia allowed up to $4,000 per qualifying savings trust account each year, with excess contributions carried forward. Separate VEST portfolios could be separate accounts, but multiple funds inside …
Did a federal extension preserve Virginia refund claims when the taxpayers filed their 2005 return after Virginia's six-month extended due date?
No. For tax year 2005, Virginia's six-month extension required the original return to be filed within the extended period. Filing after that date negated the extension, so the three-year refund period…
Did a service member remain domiciled outside Virginia after registering to vote, obtaining a driver's license, and registering a car in Virginia?
No. The Department found that the service member's Virginia voter registration, driver's license, and vehicle registration, combined with little evidence of continuing ties to his former state, showed…
Could individual taxpayers claim a 2005 recyclable-materials equipment credit, or use certified unused credit amounts in later years?
The Department upheld disallowance of the credit claimed on the taxpayers' 2005 individual return. It nevertheless said unused credit tied to the recycler's certified 2005 equipment purchase could be …
Was an overseas worker a Virginia domiciliary in 2006 despite having a Virginia driver's license, voter registration, and mailing address?
No. The taxpayer's indefinite overseas employment, long-term residence from 1995 through 2009, permanent home, and foreign driver's license established domicile in Country A for 2006. Virginia licensi…
Did interest on obligations issued directly by a Federal Home Loan Bank qualify for Virginia's U.S.-obligation subtraction?
Yes. After reconciling the taxpayers' partial Forms 1099 and federal-return schedules, Virginia found that interest on notes, bonds, and other obligations issued directly by a Federal Home Loan Bank q…
Could a Virginia resident subtract an entire IRC § 457 plan distribution because Pennsylvania had taxed his employee contributions to the plan?
Not the entire distribution. Virginia allowed a subtraction for the portion attributable to employee contributions that Pennsylvania had already taxed, but investment income remained taxable when dist…
Did years of losses show that a Virginia couple's horse-breeding and hippotherapy operation was not conducted for profit?
No. After weighing the federal profit-motive factors, Virginia found that the couple operated the horse and hippotherapy venture for profit during 2002 through 2006. The wife's expertise and full-time…
Could a couple deduct losses from a horse farm that trained and sold horses for fox hunting despite losses and no separate bank account?
Yes. Virginia found the farm was conducted for profit based on the wife's horse expertise, the couple's 139 to 152 monthly work hours, advertising and sales efforts, adequate books, cost reductions, a…
Did attending college and living in student housing outside Virginia prove that a taxpayer changed domicile for 2006?
No, not on the evidence provided. Virginia generally did not treat a dorm or college apartment, or temporary student employment, as proof of a permanent new domicile. The taxpayer asserted ties to ano…
Could a North Carolina resident claim a Virginia nonresident credit for North Carolina tax on Virginia S-corporation income?
No. Virginia's nonresident credit depended on the taxpayer's home state granting Virginia residents a substantially similar credit. North Carolina did not allow an income-tax credit to nonresidents, s…
Did a W-2, an exchange agreement, and an unsigned letter faxed by the deadline count as a timely Virginia refund return?
No. The May 1, 2008 fax did not request a stated refund, lacked the taxpayer's signature, omitted a completed prescribed return and deduction information, and did not disclose the amount of the Sectio…
Did ten years of indefinite foreign residence establish a new domicile despite a Virginia home, license, and absentee voting?
Yes. The taxpayer had lived and worked abroad since 1997, maintained a family home there, held indefinite employment, became an official resident, and planned citizenship. Those facts outweighed retai…
Could a Virginia resident claim all dependent exemptions when filing separately from a nonresident military spouse?
Yes. A Virginia resident and nonresident military spouse who filed jointly for federal purposes but separately in Virginia could allocate dependent exemptions as they mutually agreed. Proportional all…
Could Virginia residents claim an other-state credit for Kentucky income tax paid at the partnership level on a member's behalf?
Yes. Kentucky temporarily taxed partnerships and LLCs as corporations but gave individual members a credit for their proportionate entity tax. The professional LLC reported the husband's share, and th…
Was a nonresident servicemember's active-duty pay exempt after the couple elected to file a joint Virginia resident return for 2008?
No. By filing a joint Virginia resident return, the Virginia spouse and nonresident servicemember elected to compute joint income as if both were residents, so the Servicemembers Civil Relief Act did …
Could parents deduct contributions to custodial Virginia college-savings accounts when the children, not the parents, owned the accounts?
No. Virginia's deduction required the contributor to be listed as the savings-account owner. The applications created UGMA/UTMA custodial accounts with the children as beneficiaries and the wife only …
Was a 1996 Virginia refund claim timely when the amended return was filed in 2000 but the IRS accepted the NOL carryback in 2007?
Yes, on the specific facts. The taxpayers filed the federal and Virginia amended returns in January 2000. Virginia delayed processing while the IRS reviewed the net-operating-loss carryback; the IRS u…
Could a Virginia resident claim credit for New York tax on salary earned while telecommuting from Virginia for a New York employer?
Yes. New York taxed the salary under its convenience-of-the-employer rule and did not credit Virginia tax, while Virginia law did not prohibit its own resident credit. Virginia allowed a credit for th…
Was a taxpayer domiciled in Virginia for 2005 because he had obtained a Virginia driver's license and registered to vote?
No. The taxpayer had lived abroad since 2003, his child lived and attended school there, he owned no Virginia property, and he reported self-employment income as foreign earned income using the foreig…
Did spouses establish domicile outside Virginia for 2005 despite keeping Virginia licenses, vehicle registrations, and withholding?
Yes. After their Virginia employer failed, the spouses filed bankruptcy, lost their Virginia home, rented a permanent home in another state, received financial documents there, and sought work there a…
Could taxpayers obtain refunds for long-term-care premium deductions claimed on late 2003 and 2004 amended returns and a missing 2006 return?
The 2003 and 2004 refunds were barred because the amended returns were filed after Virginia's three-year deadline, and a later policy change did not extend that period. The Department lacked authority…
Did retired spouses establish domicile outside Virginia despite lengthy return visits and a Virginia-registered automobile?
Yes. The spouses sold their Virginia home, established a permanent home in another state, registered and voted there, moved or disposed of their vehicles, obtained that state's driver's licenses, and …
Could Virginia proportionally allocate deductions and a dependent exemption between a resident spouse and a nonresident servicemember?
Virginia had to restore the dependent exemption because the spouses had mutually assigned it to the resident spouse, so it was separately accounted for. But Virginia correctly allocated untraced itemi…
Did a taxpayer establish foreign domicile by 2006 despite retaining an unrenewed Virginia driver's license and automobile?
Yes. The taxpayer moved abroad in 2002, pursued an advanced degree as part of obtaining permanent status, secured permanent employment, leased a home, bought a local car, sold her Virginia rental prop…
Did a taxpayer remain domiciled in Virginia while living abroad on a renewable temporary work permit during 2006?
No. The taxpayer sold his Virginia home and cars, moved his family and property abroad, held a renewed apartment lease and work permit, obtained foreign licenses and a vehicle, joined local organizati…
Did nonresident partners have Virginia-source income from a Virginia limited partnership, and could prior losses offset the 2005 income?
Yes, the husband had Virginia-source pass-through income because the limited partnership held assets and conducted business in Virginia, and partnership items retained their source and character when …
Could Virginia recover a refund created when federal refund offsets were credited to a taxpayer and later reversed?
Yes. Federal refund offsets were temporarily credited to the taxpayer after his older Virginia assessments had been abated, producing refund checks that he cashed. The federal government later reverse…
Could reservation residents subtract the husband's interest, dividends, and pension when the sources were outside the reservation?
No. Virginia protected income earned solely from pursuits on the reservation, not investment income from outside banks, funds, and corporations or a pension generated by off-reservation employment. Wr…
Could reservation residents subtract the wife's wages, investment income, and pension from Virginia income?
The investment and pension subtractions were denied: outside banks and investment providers produced off-reservation income, and the pension arose from off-reservation employment. The wife's temporary…
Could a Virginia reservation resident subtract interest, dividends, and a pension tied to off-reservation employment?
No. Virginia's policy protected income earned by a reservation resident solely from pursuits on that reservation, but not income from outside institutions or off-reservation employment. The taxpayer's…
Were spouses who moved out of Virginia in February 2007 full-year residents, and how did they report income before and after the move?
No. The couple proved they spent fewer than 183 days in Virginia and established a new domicile when they bought and moved into an out-of-state condominium in February 2007, followed by other abandonm…
Could a surviving annuitant claim Virginia's disability-income subtraction when the recipient was not permanently and totally disabled?
No. Although the husband received payments reported as disability income after his disabled former spouse died, Virginia required the taxpayer claiming the subtraction to be absent from work because o…
Did retaining an unrenewed Virginia driver's license make a Foreign Service officer and spouse Virginia domiciliaries after they left the state?
No. The couple had established Virginia domicile while living and working there from 2001 to 2003, but they abandoned it when the officer transferred overseas, they gave up their apartment, the spouse…
Did spouses who established another-state domicile still owe Virginia tax on the husband's salary for days he worked in Virginia?
Yes. Virginia accepted that both spouses had changed domicile to another state for 2006 despite retaining a Virginia home, licenses, voter registrations, and one vehicle. But the husband worked in Vir…
Could a permanently disabled Virginia taxpayer subtract third-party sick pay reported as wages on Form W-2?
No. Although the taxpayer was permanently and totally disabled, the insurer reported the payments as wages on Form W-2. Virginia classified them as temporary sick pay, not qualifying disability income…
Could individual owners claim Virginia's recyclable-materials processing equipment credit for equipment purchased by a business in 2005?
Not on the 2005 individual return. Virginia's authority for individuals to claim the credit had expired after 2003, and pass-through eligibility did not return until tax years beginning in 2008. The a…
Could Virginia attribute related-company management fees and embedded royalties directly to nonresident owners on their individual returns?
Not by the audit method used. Virginia said § 58.1-446 addresses corporate adjustments and did not support attributing the full management fees directly to the individual owners. The at-cost managemen…
Did a professional athlete abandon Virginia domicile by obtaining another state's license and voter registration while training and playing elsewhere?
No. Virginia found that the couple remained domiciliary residents for 2004-2006. The husband's other-state driver's license, voter registration, training, and four-month lease did not outweigh the Vir…
Could a full-time worker subtract Civil Service Retirement System disability payments on a Virginia return?
No. A claimant had to receive disability income and be absent from work because of permanent and total disability. The taxpayer worked full time in competitive retail-food employment, performed ordina…
Could taxpayers deduct Schedule C expenses for an information technology activity that won no contracts, kept no separate books, and included personal purchases?
No. Virginia upheld the assessments because the taxpayers did not operate the information technology activity in a businesslike manner and claimed personal expenses as business deductions. They won no…
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These are official tax letter rulings and advisory opinions issued by Virginia's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.