Administrative Code

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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 110. Individual Income Tax
6/30/2022

23VAC10-110-222. Credit for income taxes paid in another state; nonresidents.

A. Generally. Any nonresident of Virginia who has become liable to his state of residence for income tax upon his Virginia taxable income may be eligible for a credit against Virginia income tax liability for all or a portion of such liability, subject to the qualifications set forth in subsections B through D of this section.

(NOTE: As of September 19, 1984, only residents of Arizona, California, District of Columbia, Maryland, New Mexico and West Virginia may claim this credit.)

B. Qualifying income. Tax payable to another state on income from Virginia sources which is subject to Virginia income tax may be creditable in whole or in part, against an individual's Virginia income tax liability.

C. Credit amount. The amount of credit allowed is computed by determining the ratio of Virginia taxable income to taxable income in the taxpayer's state of residence multiplied by the tax paid to such other state. The following examples illustrate the computation of this credit.

(NOTE: All of the following examples assume that State X is either Arizona, California, D.C., Maryland, New Mexico, or West Virginia.)

EXAMPLE 1: Taxpayer A, a resident of State X is a single individual who does not itemize deductions. A has income from all sources (in this case, equal to FAGI) of $20,000, taxable in State X to which A is liable for $800 in tax. $15,000 of this income is derived from Virginia sources and is taxable in this state. The credit allowed is computed as follows:

FAGI =

$20,000

Less:

Personal Exemption

(600)

Standard Deduction

(2,000)

Va. taxable income computed as a resident =

$17,400

Nonresident taxable income =

17,400 x

15,000 - Va. source income
20,000 - Income from all sources

= $13,050

Virginia tax liability on $13,050 = $530.81

Available Credit =

Va. taxable income
Income taxable to residence state


x Tax imposed by residence state

= 13,050
20,000

x 800 = $522

Credit allowed = $522 and A would be liable to Virginia for $8.81 in tax.

EXAMPLE 2: Assume the same facts as Example 1 except that $10,000 in income is derived from Virginia sources and a tax liability of $1,000 is incurred to State X. The credit allowed is computed as follows:

Va. taxable income computed as a resident = $17,400

Nonresident taxable income =

17,400 x

10,000 - Va. source income
20,000 - Income from all sources

= $8,700

Virginia tax liability on $8,700 = $304.88

Available Credit =

Va. taxable income
Income taxable to residence state


x Tax imposed by residence state

= 8,700
20,000

x 1000 = $435

Credit allowed = $304.88 (Credit is limited to Virginia tax liability.)

EXAMPLE 3: Taxpayer J, a resident of State X has total income (in this case, equal to FAGI) of $50,000, $30,000 of which is 40% of a long- term capital gain from the sale of property located in Virginia. J is single and has $5,000 in itemized deductions. State X disallows the federal 60% deduction for long-term capital gains, thus J's taxable income in State X is $95,000 (50,000 + additional 45,000 on capital gain) and is liable to State X for tax of $3,800. The Virginia credit allowed is computed as follows:

FAGI =

50,000

Less:

Personal Exemption

( 600)

Standard Deduction

( 5,000)

Va. taxable income computed as a resident =

$44,400

Nonresident taxable income =

 

44,400 x

30,000 = Va. source income 50,000 = Income from all sources


= $26,640

Virginia tax liability on $26,640 = $1,311.80

 

Available Credit =

Va. taxable income
Income taxable to residence state


x Tax imposed by residence state

= 26,640
95,000

x 3800 = $1,065.60

Credit allowed = $1,065.60 and A would be liable to Virginia for $246.20 in tax.

D. Limitations. No credit shall be allowed to nonresidents unless their state of residence:

1. Grants Virginia residents a credit for tax liability to such state which is substantially similar to that granted by Virginia to nonresidents. For purposes of this section a "substantially similar" credit is a credit to Virginia residents for Virginia tax liability on income from sources within such other taxing jurisdiction. If another state grants a credit which is limited to certain types of income, e.g., only earned income, the nonresident credit may be granted only upon review by the Tax Commissioner; or

2. Imposes a tax on the Virginia source income of its residents and exempts Virginia residents from taxation. The fact that the laws of another state do not impose an income tax on Virginia residents does not constitute an exemption under the meaning of this subsection. This subsection allows a credit only where a nonresident taxpayer's state of residence imposes a net income tax similar to that imposed by Virginia and exempts Virginia residents from such tax.

Statutory Authority

§§ 58.1-203 and 58.1-332 of the Code of Virginia.

Historical Notes

Derived from VR630-2-332 § 3; adopted September 19, 1984; revised, eff. January 1, 1985; amended, eff. January 21, 1987.

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