Virginia ~ Personal Income Tax: Resident Trust Not Subject to Fiduciary Income Tax as It Lacked Nexus with State

CCH Tax Day Report

An irrevocable trust created by a deceased Virginia resident was not required to file Virginia fiduciary income tax return because it had no nexus with the state. Generally, all resident trusts which file a federal income tax return, or have Virginia taxable income, must file an income tax return in Virginia, provided they have sufficient nexus with the state. If a grantor is deceased, the Department of Taxation will consider the locations of the trustee(s), beneficiaries, or the property in order to impose Virginia fiduciary income tax. In this case, the trust was a resident trust as it was created by a Virginia taxpayer and consisted of his property. However, the trust cash and securities were held in an international brokerage firm, which administered the trust from its office in another state. Furthermore, neither the trustee nor the beneficiary was a Virginia resident. As the trust did not have a nexus with Virginia, it was not required to file a Virginia fiduciary income tax return and was not subject to Virginia income tax. Additionally, the fact that the trust’s investment advisor is located in Virginia does not change the determination, as the department does not normally consider the location of such third parties when determining whether a trust has nexus with Virginia.

Ruling of Commissioner, P.D. 16-184, Virginia Department of Taxation, September 14, 2016, ¶206-294

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