RICHMOND, JUNE 12 -- A Virginia Supreme Court decision affecting Virginia residents who own firms in the District may cost the state's tax coffers $20 million or more, officials said.
Officials at the Virginia Department of Taxation said they were notified today that the state's highest court decided not to rehear a precedent-setting case involving Llewellyn King, a Fairfax County resident who operates a D.C. publishing company.
At issue was whether King could take a deduction on his Virginia tax return for the money he paid on the District's unincorporated business tax. Virginia tax officials argued that the state gives tax credits only on income taxes paid in other states, not business taxes, and denied King his deduction.
But, in the culmination of a dispute that began seven years ago, the state Supreme Court ruled that the District's unincorporated tax is essentially the same as an income tax, and that King -- and, by inference, others who paid the tax -- are due a refund.
The Virginia attorney general's office, which had pressed the state court to overturn its April ruling in King's favor, is considering an appeal of the case to the U.S. Supreme Court, according to spokesman Bert Rohrer.
State tax commissioner William H. Forst said the ruling could cost the state $20 million.
This is the second court ruling on taxes in two years that has brought bad news for Virginia officials. The U.S. Supreme Court last year ruled -- in a Michigan case that affects Virginia -- that states cannot give tax breaks to state government pensioners if they do not give the same deductions to federal retirees.
If Virginia is ordered to pay refunds in the pension case, it is expected to cost about $400 million.
Steven Leventhal, the attorney who represented King, said the case began when King unsuccessfully claimed an $11,000 tax credit on his 1983 return. An administrative appeal to the tax department was unsuccessful, as was King's original trial in Fairfax County Circuit Court.