Virginia AG endorses department ruling policy


On Oct. 2, 2020, the Attorney General of Virginia issued an official opinion endorsing the Virginia Department of Taxation’s discretion to adopt a pro-rata methodology in calculating the amount of a retirement plan distribution that may be subtracted from taxable income under Virginia law.1 In reaching this conclusion, the Attorney General relied upon a previously issued Department letter ruling, in which the Virginia Tax Commissioner determined that a pro-rata approach more accurately reflects the nature of a distribution from a retirement plan.2 With this opinion, the Attorney General endorsed Department tax policy as established through a letter ruling in the absence of clear statutory authority.






Virginia provides taxpayers with various types of persuasive authority in interpreting the Virginia tax statutes and in taking various tax filing positions on returns filed with the Department.



Types of authority


Guidance Documents. The Department develops and publishes various guidance documents for taxpayers seeking further information and direction regarding Virginia tax law and regulations.3 Intended to provide information and guidance of general applicability in the Department’s implementation of the tax laws and regulations, guidance documents are not given the same weight as regulations promulgated by the Department.4 Examples of guidance documents include guidelines for taxpayers related to specific subjects; tax bulletins regarding urgent or temporary issues; tax forms and instructions; and other reports and publications.

Tax Commissioner rulings. If a taxpayer does not agree with an initial Department tax assessment, an administrative appeal may be filed with the Tax Commissioner.5 The Tax Commissioner is authorized to issue a determination to the taxpayer regarding the appeal in the form of a letter ruling or appeal decision.6 Such rulings are considered advisory opinions and are binding on the taxpayer requesting the ruling on the specific tax provisions at issue.7 Taxpayers are generally discouraged to rely on Tax Commissioner rulings that may have been similar to their current issue.8 Rather, taxpayers are encouraged to consult letter rulings for persuasive support regarding the Department’s interpretation of Virginia tax laws and regulations.

Virginia Attorney General official opinions. Upon request, the Virginia Attorney General may issue official opinions regarding the interpretation and administration of certain provisions of Virginia law. These opinions do not hold the precedential weight of an official judicial opinion. Instead, official opinions function as legal advice for taxpayers as the opinions are not binding on courts, though they may be given deference in court determinations.9 Attorney General official opinions may only be requested by state and local government officials authorized by statute, including the Governor, a member of the General Assembly, a constitutional officer, a Commonwealth attorney, or the head of a state agency.10

Attorney General opinion In this matter, a Virginia state senator requested an official advisory opinion from the Attorney General regarding the Virginia tax treatment of a retirement plan distribution as interpreted in a previous Tax Commissioner ruling. Specifically, the Attorney General was asked whether the Department has the legal authority under state law to adopt a pro-rata methodology for calculating the amount of the distribution representing the taxpayer’s contribution to the plan that may be subtracted from Virginia taxable income.11

Acknowledging that Virginia tax law is silent regarding the calculation of the portion of a retirement plan distribution representing a return of the employee’s contribution, the Attorney General referenced a 2010 Tax Commissioner ruling regarding an individual’s income tax on his out-of-state deferred compensation plans.12 The taxpayer moved to Virginia and took a distribution from his deferred compensation plan based out of Pennsylvania. In determining whether the contributions were excluded from federal adjusted gross income, the Commissioner looked to the Internal Revenue Code to determine the taxable and nontaxable portions of annuity payments.13 Accordingly, the Tax Commissioner determined that the applicable retirement plan distributions representing taxpayer contributions should be calculated on a pro-rata basis because “a pro-rata approach more accurately reflects the nature of a distribution from a retirement plan.”




The Attorney General’s opinion


substantively endorsed the Tax Commissioner’s adoption of the pro-rata basis recovery method. Acknowledging the taxpayer’s argument to apply a cost-recovery methodology, the Attorney General agreed with the Tax Commissioner’s rejection of this argument, noting that the Department is the agency responsible for the administration of Virginia tax law.14 As such, the Attorney General determined that “[a]bsent a statutory directive requiring or prohibiting the use of a specific methodology, the Department is vested with the discretion how to calculate the subtraction authorized by Sec. 58.1-322.02(11).”15 Accordingly, the Attorney General concluded that the Department had discretion under Virginia law to adopt a pro-rata methodology in calculating the amount of a retirement plan distributions that may be subtracted from Virginia taxable income.






Although the Attorney General’s reliance upon a Tax Commissioner’s letter ruling is relatively uncommon, it has occurred at least once before. In 2014, the Attorney General independently came to the same conclusion as the Tax Commissioner (as provided in two of the Tax Commissioner’s public letter rulings) in determining the proper definition of the terms “original cost” and “original total capitalized cost,” for purposes of local taxes imposed on tangible personal property and machinery and tools.16


Unlike the Attorney General’s latest opinion, the 2014 opinion merely utilizes the Tax Commissioner’s private rulings to strengthen—rather than establish—the legal analysis and conclusion. The current opinion contains no antecedent reasoning to provide a basis for the opinion and instead looks principally to the Tax Commissioner’s letter to lay the foundation for his legal opinion. In light of this opinion, Virginia taxpayers are afforded a substantive instruction regarding the portion of retirement plan distributions that may be subtracted from taxable income.

The consequences of issuing such an opinion could be significant, especially given the large number of tax rulings that the Department issues annually. The Attorney General’s opinion may encourage taxpayers to more confidently rely on previously issued Tax Commissioner letter rulings adopting a Department tax policy that is not explicitly prescribed or prohibited by statute or regulation. As noted in the Attorney General’s opinion, both the Tax Commissioner and the Department are vested with the authority to administer the tax laws of Virginia. Without a clear statutory directive in place, the opinion suggests that a taxpayer may rely on a previously issued private letter ruling that fills in the statutory gap. In such a scenario, the Attorney General’s endorsement of a Department policy position potentially elevates such a ruling to a heightened level of authority, possibly closer to how the Department’s formal regulations are viewed.

Historically, when an ambiguity in Virginia tax law existed, taxpayers would seek clarification through the Tax Commissioner’s letter rulings that would determine a conclusion as applied to the taxpayer’s specific facts and circumstances. However, the Attorney General opinion relies on the Tax Commissioner’s guidance on interpreting the statute in a different taxpayer scenario and applies the methodology to a question of general applicability. Rather than viewing the Tax Commissioner’s determination as mere guidance, the Attorney General endorsed the Tax Commissioner’s ruling and acknowledged the Department’s powers in administering and implementing Virginia tax law. Such endorsement may be compared to the judicial concept of deference to state taxing authorities, whereby courts defer to a state taxing agency’s interpretation of a taxing statute in the absence of clear statutory authority.17



1 Opinion No. 19-058, Office of the Attorney General of Virginia, Oct. 2, 2020.
2 Public Document No. 10-214, Virginia Department of Taxation, Sept. 15, 2010.
See Guidance Documents, Virginia Department Taxation, published at
See VA. CODE ANN. §§ 58.1-204(1); 58.1-205(3).
5 VA. CODE ANN. § 58.1-1821.
7 VA. CODE ANN. § 58.1-204.
See Public Document No. 98-41, Virginia Department of Taxation, Oct. 8, 1998 (“[t]his response is intended to provide advisory guidance only and does not constitute a formal or binding ruling”).
See Official Opinions, Virginia Office of the Attorney General, published at
10 VA. CODE ANN. § 2.2-505(A).
11 Virginia law permits taxpayers to subtract certain retirement plan distributions in computing Virginia taxable income. VA. CODE ANN. § 58.1-322.02(11). However, the relevant statutory provision does not prescribe the specific methodology to calculate which portion of a plan distribution represents the taxpayer’s contribution to the plan (which may be subtracted), and which portion generates income generated by those contributions (which may not be subtracted).
12 Public Document No. 10-214, Virginia Department of Taxation, Sept. 15, 2010.
13 IRC § 72 allows the use of a pro-rata basis recovery rule that applies to distributions from annuities, endowments, and life insurance contracts.
14 VA. CODE ANN. § 58.1-202(1).
15 Quoting Nielsen Co., LLC v. Cty. Bd. Of Arlington Cty., 767 S.E.2d 1, 8-9 (Va. 2015).
16 Official Opinion No. 14-018, Office of the Attorney General of Virginia, June 26, 2014.
17 An extreme example of judicial deference to a state taxing authority is the recent case of Synthes USA HQ Inc. v. Pennsylvania, in which the Pennsylvania Commonwealth Court endorsed a controversial unpublished policy position taken by the Pennsylvania Department of Revenue that applied a “benefits-received” sourcing analysis for sales of services under an older costs-of-performance receipt-sourcing statute for Pennsylvania corporate net income tax purposes. No. 108 F.R. 2016, Pennsylvania Commonwealth Court, July 24, 2020. For further discussion, see GT SALT Alert: “Pennsylvania upholds Revenue Dept. sourcing method.”








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