23VAC10-110-180. Taxable income of nonresidents.
A. Generally. The Virginia taxable income of a nonresident individual, partner,shareholder or beneficiary is Virginia taxable income computed as a resident multiplied by the ratio of net income, gain, loss and deductions from Virginia sources to net income, gain, loss and deductions from all sources.
B. Net income, gain, loss and deductions. As used in this regulation, "net income, gain, loss and deductions" includes income, gain, loss and deductions attributable to (i) the ownership of any interest in real or tangible personal property; (ii) the conduct of a business, trade, profession or occupation; (iii) wages, salary, and tips; and (iv) income from intangible personal property employed by an individual in a business, trade, profession or occupation. Net income, gain, loss and deductions includes interest income, dividends (less the exclusion allowed by IRC § 116), business income and loss, capital gains or losses (subject to the 60% long-term capital gains provisions of IRC § 1202), supplemental gains and losses, pensions and annuities (to the extent subject to federal taxation), rents, royalties, income from partnerships, estates, trusts, and S corporations, farm income and loss, unemployment compensation (to the extent) subject to federal taxation), interest on obligations of states other than Virginia, lump sum distributions, and other income such as gambling winnings, prizes and lottery winnings. "Net income, gain, loss and deductions from Virginia sources" means that attributable to property within Virginia, or to the conduct of a trade, business, occupation or profession within Virginia. Net income, gain, loss and deductions from Virginia sources includes salary, tips or wages earned in Virginia, gain on the sale of property located in Virginia, income or loss from a partnership, estate, trust, or S corporation doing business in Virginia, and income from intangible personal property employed by an individual in a business, trade, profession, or occupation carried on in Virginia.
EXAMPLE 1: Taxpayers A and B, a married couple filing a joint return, are residents of State X. Their income and deductions for taxable year 1984 consists of the following:
| Wages and salary | $30,000 |
| Interest on State X obligations | 5,000 |
| 40% of capital gain on sale of Va. property | 65,000 |
| Itemized deductions (includes 500 in Va. income tax) | 10,000 |
| Income from Va. S corp. | 15,000 |
| Interest on savings account in Va. bank | 5,000 |
| Rent received from Va. property | 10,000 |
A and B are entitled to claim four personal exemptions and their FAGI is $125,000. Their nonresident Virginia taxable income is computed as follows:
Step 1: Income computed as a resident.
|
| FAGI |
| $125,000 |
| Less: | Itemized deductions | (9,500) |
|
|
| (Reduced by $500 Va. income tax deduction) |
|
|
|
| Exemptions | (2,400) | (11,900) |
| Plus: | Interest on State X obligations |
| 5,000 |
|
| Va. income computed as resident |
| $118,100 |
Step 2: Ratio of net income gain, loss and deductions from all sources to Virginia sources
|
| All Sources | Virginia Sources | |
| Wages and salary | $30,000 | 0 | |
| Interest on State X obligations | 5,000 | 0 | |
| Capital gain | 65,000 | $65,000 | |
| Va. S corporation distribution | 15,000 | 15,000 | |
| Interest from savings | 5,000 | 0 | |
| Rent | 10,000 | 10,000 | |
|
| Totals | $130,000 | $90,000 |
| Va. source income | = | $90,000 | x 69.2% |
| Income from all sources | $130,000 |
Step 3: Computation of Virginia taxable income.
| $118,100 | x 69.2% = $81,725 | |
| (Income computed as resident) |
|
|
EXAMPLE 2: Taxpayer D, a single individual, is a resident of State Y. His income and deductions for taxable year 1984 consist of the following:
| Wages and salary | $50,000 |
| Taxable annuity | 15,000 |
| Loss from Va. partnership | (20,000) |
| Loss from sole proprietorship (in State Y) | (10,000) |
| Dividends received (exclusion taken) | 20,000 |
| 40% of capital gain on sale of State Y property | 60,000 |
| Itemized deductions (include 2,000 in Va. income tax) | 22,000 |
D is age 66 and is entitled to claim one exemption in addition to the additional $400 exemption for taxpayers age 65 and over. D's FAGI for 1984 is $115,000 and Virginia taxable income is computed as follows:
Step 1: Income computed as a resident.
|
| FAGI |
| $115,000 |
| Less: | Itemized deductions | (20,000) |
|
|
| (Reduced by $2,000 Va. income tax deduction) |
|
|
|
| Personal exemptions | (1,600) | (21,000) |
|
| Income computed as resident |
| $93,400 |
Step 2: Ratio of net income gain, loss and deductions from all sources to Virginia sources
|
| All Sources | Virginia Sources | |
| Wages and salary | $50,000 | 0 | |
| Taxable annuity | 15,000 | 0 | |
| Partnership loss | (20,000) | ($20,000) | |
| Sole proprietorship loss | (10,000) | 0 | |
| Dividends received | 20,000 | 0 | |
| Capital gain | 60,000 | 0 | |
|
| Totals | $115,000 | ($20,000) |
| Va. source income | = | ($20,000) | x –17.4% |
| Income from all sources | $115,000 |
Step 3: Computation of Virginia taxable income.
| $93,400 | x –17.4% = $0 | |
| (Income computed as resident) |
|
|
Since the ratio of net income gain, loss and deductions from all sources to Virginia sources is less than 0 due to the Virginia source loss, D has no Virginia taxable income.
EXAMPLE 3: H and W, a married couple filing a joint return are residents of State W. Their income and deductions for taxable year 1984 consisting of the following:
| Wages and salary | $12,000 |
| Loss from State W farm | (8,000) |
| Interest on State W obligations | 30,000 |
| 40% of capital gain on sale of Va. property | 4,000 |
| Taxable annuity | 6,000 |
| Itemized deductions | 6,000 |
H and W are entitled to claim six exemptions and the FAGI for 1984 is $14,000. Their Virginia taxable income is computed as follows:
Step 1: Income computed as a resident
|
| FAGI |
|
| $14,000 | |
| Less: | Itemized deductions | (6,000) |
|
| |
|
| Personal Exemptions | (3,600) | (9,600) |
| |
| Plus: | Interest on State W obligations |
| 30,000 | 20,400 | |
|
| Income computed as Resident |
|
|
| $34,400 |
Step 2: Ratio of net income gain, loss, and deductions from all sources to Virginia sources.
|
| All Sources | Virginia Sources | |||
| Wages and salary | $12,000 | 0 | |||
| Farm loss | (8,000) | 0 | |||
| State W obligations interest | 30,000 | 0 | |||
| Capital gain | 4,000 | 4,000 | |||
| Taxable annuity | 6,000 | 6,000 | |||
|
| Totals |
| $44,000 |
| $10,000 |
| Va. source income | = | $10,000 | = 22.7% |
| Income from all sources | $44,000 |
Step 3: Computation of Virginia taxable income.
| $34,400 | x 22.7% = $7,809 | |
| (Income computed as resident) |
|
|
C. Nonresident shareholders in S corporations. A nonresident individual who is a shareholder in an electing small business corporation (S corporation) must include in Virginia taxable income his share of the taxable income of such corporation. Such nonresident shareholder shall deduct from Virginia taxable income, his share of the net operating loss of an S corporation. The amount to be included or deducted shall be that which is attributable to a business, trade, profession or occupation carried on in this state.
Statutory Authority
§§ 58.1-203 and 58.1-325 of the Code of Virginia.
Historical Notes
Derived from VR630-2-325 §§ 1–3; adopted September 19, 1984; revised January 1, 1985; amended, eff. January 21, 1987.