W. Va. Code R. § 110-21-54

Current through Register Vol. XLI, No. 50, December 13, 2024

Section 110-21-54 - Change Of Resident Status During Year

54.1. General. - A taxpayer who changes his residence either from West Virginia to another place or from another place to West Virginia during his taxable year is required to file two (2) income tax returns with the State of West Virginia: one (1) return covering the period of residence, and one (1) return covering the period of nonresidence.

54.1.1. If a change of residence occurred during the taxable year and the taxpayer had no income derived from or connected with West Virginia sources during the period of nonresidence, a statement verifying that the taxpayer had no West Virginia income during such period may be attached to the required return in lieu of filing the nonresident return. Such statement will serve as the return for the nonresident period only if the taxpayer had no West Virginia income during the period of nonresidence.

54.1.1.1. Example. - If an individual resided in the State of Ohio for the first (1st) six (6) months of the taxable year and in West Virginia for the last six (6) months of the taxable year and had no West Virginia source income while an Ohio resident but did have income while a West Virginia resident, a statement verifying that such individual had no West Virginia income while a nonresident, attached to the required return, will satisfy filing requirements for the nonresident portion of the year.

54.1.2. The provisions of Subsection 54.1.1 above are equally applicable where the taxpayer had West Virginia income while a nonresident but had no income while a resident.

54.1.3. Husband And Wife With Different Resident Status. - If a husband or wife changes his or her resident status during the taxable year, while the other spouse maintains his or her status as a resident or nonresident, as the case may be, during the entire taxable year, the spouse who changes his or her residence during the taxable year must, unless excused under Subsection 54.1.1 of this regulation, file two (2) returns for that year: one (1) return for the portion of the year during which such spouse was a resident and one (1) return for the portion of the year during which such spouse was a nonresident. The spouse who did not change his or her residence during the taxable year must file a separate West Virginia return, if such spouse has income subject to taxation under the West Virginia Personal Income Tax Act, without regard to the change made by the other spouse.

54.1.3.1. Example. - X, a West Virginia resident, marries Y, an Ohio resident, on November 1, 1989, and on the same date Y moves into West Virginia to live with X. Y earned income in West Virginia after she became a resident; therefore, Y is required to file two (2) returns with the State of West Virginia for the taxable year 1989, and X must file a separate resident return for the taxable year 1989. Each must claim his own exemption. Neither spouse may file a joint return.

54.2. West Virginia Taxable Income As Resident And Nonresident. - The West Virginia taxable income for the portion of the year during which an individual was a resident shall be determined except for the special accruals under Subsection 54.3 of this regulation, as if his taxable year for federal income tax purposes was limited to the period of his resident status. The West Virginia taxable income for the remaining portion of the taxable year during which he was a nonresident shall be determined, except for the special accruals under Subsection 54.3 of this regulation, as if his taxable year for federal income tax purposes was limited to the period of his nonresident status.

54.2.1. For purposes of the preceding Subsection annual limitations with respect to specific items of income, gain, loss and deduction allowable for federal income tax purposes are to be applied separately to the applicable federal items attributable to the separate periods covered by the West Virginia resident and nonresident returns required under this regulation.

54.3. Special Accruals.

54.3.1. If an individual changes his status from resident to nonresident, he must, regardless of the method of accounting he normally employs, accrue and include on his West Virginia return for the portion of the year prior to such change, any items of income, gain, loss or deduction accruing prior to the change if not otherwise properly includible or allowable for West Virginia income tax purposes for such portion of the taxable year or for a prior taxable year. Thus, in computing his West Virginia taxable income for that period, he must include all the items he would be required to include if he were filing a federal return for the same period on the accrual basis, together with any other accruals, such as deferred gain on installment obligations, which are not otherwise includible or deductible for federal or West Virginia income tax purposes either for such period or for a prior taxable period.

54.3.1.1. Where a taxpayer sells his business in West Virginia at a gain, under a contract whereby the purchase price is to be paid in installments, and later changes his status from resident to nonresident, he must accrue the entire amount of the gain remaining unpaid from such installment obligations, regardless of the method of accounting he normally uses in reporting his transactions. Likewise, where a beneficiary of an estate or trust changes his status during the taxable year from resident to nonresident, he must accrue on his West Virginia return for the resident period any estate or trust income credited, distributable, payable or required to be distributed to him as of the date of his change of residence.

54.3.1.1.a. Gain which is not recognized for federal income tax purposes need not be accrued for West Virginia income tax purposes solely because of the change of residence. For example, a gain realized on the sale of the taxpayer's principal residence, if it is not recognized for federal tax purposes by virtue of the provisions of the Internal Revenue Code relating to acquisition of a new residence, then it need not be accrued in the taxpayer's West Virginia return for the period prior to his change of residence.

54.3.1.2. The amount of the accrued items shall be determined, with the applicable modifications described in W. Va. Code '11-21-12 and Section 12 of these regulations, as if such accrued items were includible or allowable for federal income tax purposes.

54.3.1.2.a. Example. - on September 10, 1989, A, a cash basis calendar year taxpayer residing in West Virginia, terminates his employment in West Virginia and moves to Florida. His salary up to the termination amounted to eight thousand dollars ($8,000). On September 1, 1989, his employer notifies him that under his employment contract he will receive on October 1, 1989, a bonus of one thousand dollars ($1,000), subject to no contingencies.

On August 15, 1989, the X Corporation declares a dividend of six hundred dollars ($600), payable to A on September 20, 1989, as a stockholder of record on August 15, 1989.

On June 1, 1989, A closed title with C on a tract of vacant land in Pennsylvania, taking from C a purchase money mortgage calling for annual payments on July 1 of each year. By reason of A's federal election of the installment method of accounting with respect to this transaction, A will realize a gain of five hundred dollars ($500) each year for five years or twenty-five hundred dollars ($2,500).

On November 1, 1989, the XYZ Realty Company sells A's West Virginia residence, and A realizes a taxable gain of three thousand dollars ($3,000).

For 1989, A must file two (2) West Virginia income tax returns: one (1) as a resident, and one (1) as a nonresident. On his 1989 income tax return for the portion of the year during which A was a resident, he includes in West Virginia adjusted gross income the following items:

Salary until termination...$8,000

Bonus-nonforfeitable...$1,000

Dividends accrued...$600

Gain on sale of Pennsylvania property-accrued...$2,500

On his 1989 nonresident income tax return, A includes in West Virginia adjusted gross income the following item which is derived from West Virginia sources.

Gain on sale of West Virginia residence...$3,000

The gain from the sale of the West Virginia residence was not accruable for the portion of the year A was a resident, for the sale was made and the gain realized after A became a nonresident. Because A reports the bonus payment on his West Virginia return for the resident portion of 1989, he need not take it into account on his nonresident return as an item of income derived from West Virginia sources even though he actually receives this item of income when he is a nonresident. See Subsection 54.3.3 of this regulation.

54.3.2. If an individual changes his status from nonresident to resident, he shall make the same accruals as those set forth in Subsection 54.3.3 of this regulation, except that no accrual is required for items of income, gain, loss or deduction derived from or connected with West Virginia sources. The amounts of such accrued items shall be determined with the applicable modifications described in Section 12 of these regulations as if such accrued items were includible or allowable for federal income tax purposes.

54.3.3. No item of income, gain, loss or deduction accrued under Subsection 54.3 of this regulation for the portion of a taxable year prior to a change of resident status is taken into account in determining West Virginia adjusted gross income of any subsequent taxable period.

54.3.3.1. Example. - A, a cash-basis calendar year taxpayer residing in Kentucky, performs services in Kentucky in March, 1989, for which he is paid ten thousand dollars ($10,000) in September, 1989, from the employer's West Virginia office. On August 10, 1989, A moves to West Virginia where on September 1, 1989, he receives the ten thousand dollar (10,000) salary. For 1989, A is required to file two (2) West Virginia returns, one (1) as a nonresident and one (1) as a resident. No part of the ten thousand (10,000) dollar salary is taken into account as this item was sourced in another state which preceded the date of the change of residence.

54.3.4. The return for the period prior to a change from resident to nonresident status may be filed without the special accruals referred to herein if the taxpayer files with the Tax Commissioner a bond or other security acceptable to the Tax Commissioner, in an amount not less than the amount of additional income tax which would be payable had such bond or security not been filed. The additional tax, which is considered in determining the amount of the bond or other security which the taxpayer will be required to furnish, is computed at the rates which he would have been obligated to pay if no bond or other security had been filed, taking into account all accrued items of income, gain, loss and deduction, and resolving against him all matters in dispute affecting the amount of tax.

54.4. Minimum Tax. - Where two (2) returns for one (1) taxable year are required because of a change of resident status, the total of the income taxes due thereon shall not be less than would be due if the West Virginia taxable incomes reportable on the two (2) returns were includible in one (1) return.

54.5. Prorations. - Where two (2) returns are required to be filed because of a change in resident status, the West Virginia personal exemptions allowable under Sections 16 and 36 of these regulations must be prorated between the period before the change of residence and the period after the change of residence to reflect the portions of the entire taxable year during which the individual was a resident and a nonresident.

54.5.1. The proration of personal exemptions is based upon the fractional periods of time both as a resident and as a nonresident. In determining fractional periods, a fraction of a month amounting to half a month or more constitutes a full month, and a fraction of a month amounting to less than half a month is disregarded.

54.5.2. Personal Exemption Proration For Resident Return. - The proration of personal exemptions on the return for the period of residency equals the amount allowed per exemption times the number of personal exemptions to which the taxpayer is entitled multiplied by a fraction the numerator of which is the number of months during which the taxpayer was a resident and the denominator of which is twelve (12). Thus, the resident proration formula is as follows:

Amount Per Exemption X Number Of Exemptions X (Number of Months in State/12) = Prorated Exemption Amount To Be Claimed On Resident Return.

54.5.3. Personal Exemption Proration For Nonresident Return. - The proration of personal exemptions on the return for the period of nonresidency equals the product of the amount allowed as a personal exemption for a West Virginia resident multiplied by the ratio the nonresident individual's West Virginia source income during the period of nonresidency bears to that nonresident individual's federal adjusted gross income for the taxable year times the number of personal exemptions to which the taxpayer is entitled to claim multiplied by a fraction the numerator of which is the number of months during which the taxpayer was a nonresident and the denominator of which is twelve (12). Thus, the nonresident proration formula is as follows:

W.Va. Source Income Amount Per Exemption X For Nonresident Period X Number of Federal Adjusted Gross Income Personal Exemptions X Number of Months Outside W.Va. = Prorated Exemption Amount To Be Claimed on Nonresident Return.

54.5.4. Examples.

Example 1. - A taxpayer moves into West Virginia on May 1, 1989. He was a nonresident for four (4) months and a resident for eight (8) months during tax year 1989. This taxpayer has four (4) personal exemptions and because he is required to file two (2) income tax returns with West Virginia there must be a proration of his personal exemptions to reflect the portions of the tax year where he was a resident and a nonresident. In order to determine the amount of his personal exemption to be claimed on the resident income tax return, the taxpayer must multiply two thousand dollars ($2,000) (the amount for each personal exemption) times four (4) (the number of his personal exemptions) times 8/12 (the fractional period of residence). Therefore, the amount of personal exemption on the resident return will be $5,333 ($2,000 X 4 X (8/12) = $5,333).

To find the amount to be claimed as the personal exemption on the nonresident return, this taxpayer will multiply two thousand dollars ($2,000) (the amount per exemption) by 25,000/100,000 (the ratio that his West Virginia source income for the period of nonresidence bears to his federal adjusted gross income for the taxable year) times four (4) (the number of his personal exemptions) multiplied by 4/12 (the fractional period of nonresidence). Therefore, the amount of personal exemption on the nonresident return will be $667 ($2,000 X 25,000/100,000 X 4 X (4/12) = $667).

Example 2. - The taxpayer, a dependent child, leaves West Virginia with his family on August 5, 1989. This taxpayer is entitled to one (1) West Virginia personal exemption even though he is not permitted an exemption for federal income tax purposes because he is claimed by his parents on their federal return. Since he is required to file two (2) State returns to reflect the portions of the taxable year as a resident and nonresident, he must prorate his personal exemption. For purposes of determining the fractional period of time, a fraction of a month amounting to half a month or more constitutes a full month, and a fraction of a month amounting to less than a month is disregarded. Thus, the taxpayer's fractional period of residence is 7/12, and his fractional period of nonresidence is 5/12. To find the amount of his personal exemption to be claimed on the resident return, the taxpayer multiplies five hundred dollars ($500) (the amount of the dependency exemption) by 7/12 (the fractional period of residence). Therefore, the amount allowable will be $292. ($500 x (7/12) = $292). The amount of personal exemption on his nonresident return presuming West Virginia source income for the nonresident period of three thousand dollars ($3,000) and federal adjusted gross income of nine thousand dollars ($9,000) will be $69. ($500 X 3,000/9,000 X (5/12) = $69).

W. Va. Code R. § 110-21-54