Administrative Code

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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 110. Individual Income Tax
9/25/2020

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.

Website addresses provided in the Virginia Administrative Code to documents incorporated by reference are for the reader's convenience only, may not necessarily be active or current, and should not be relied upon. To ensure the information incorporated by reference is accurate, the reader is encouraged to use the source document described in the regulation.

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