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Keywords

lawsuitjurisdictionappealtrial

statuteappealtrialsummary judgmentwill

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King v. Forst, 239 Va. 557, 391 S.E.2d 60

Facts

Llewellyn King, a Virginia resident, operated an unincorporated printing business in the District of Columbia. For the 1983 tax year, he was assessed $19,211 in District of Columbia unincorporated business (UB) taxes. After paying these taxes, King claimed a credit against his Virginia income tax for the amount paid to the District. The State Tax Commissioner ruled that the UB tax was a franchise tax and disallowed the credit, leading King to file a lawsuit after paying his Virginia taxes under protest.

For the 1983 tax year, Mr. King was assessed $19,211 in District of Columbia UB taxes. After paying the taxes, he claimed a credit against his 1983 Virginia individual income tax, under then Code § 58–151.015, for the amount paid to the District of Columbia.

Issue

The main issue was whether the District of Columbia's tax on the net income of unincorporated businesses is classified as an income tax or a franchise tax, which determines if a Virginia resident is entitled to a credit against their Virginia income taxes.

The dispositive question in this appeal is whether the District of Columbia's tax on the net income of unincorporated businesses, D.C.Code Ann. § 47–1808.1, et seq. (1981), (the UB tax) is an income tax or a franchise tax.

Rule

The court applied the principle that the nature and effect of a tax, rather than its label, determine whether it is classified as an income tax or not. Additionally, Virginia law allows for a credit against state income taxes for taxes paid to other jurisdictions, provided those taxes are classified as income taxes.

It is fundamental that the nature and effect of a tax, not its label, determine if it is an income tax or not.

Analysis

The court analyzed the classification of the District's UB tax by referencing a previous ruling from the District of Columbia Court of Appeals, which had determined that the UB tax was an income tax. The court emphasized that the label of the tax is not as important as its nature and effect, and since the UB tax is measured by net income, it qualifies as an income tax under Virginia law.

Applying the construction given the UB statute by the highest court of the District of Columbia, we hold that it is an income tax.

Conclusion

The Supreme Court of Virginia reversed the lower court's ruling and remanded the case, directing the trial court to ascertain the credit due to King for the taxes paid to the District of Columbia.

Because the trial court erred in granting summary judgment in the Commissioner's favor, we will reverse the judgment and remand the case to the trial court with direction to ascertain the credit due the taxpayer and order appropriate relief, consistent with this opinion.

Who won?

Llewellyn King prevailed in the case because the Supreme Court of Virginia determined that the District of Columbia's UB tax was an income tax, thus entitling him to a credit against his Virginia income taxes.

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