Tax Commissioner Receives Ruling on Tobacco Settlement Payments

RICHMOND, VA. - Virginia Tax Commissioner Danny M. Payne announced today that he has received advice from the Internal Revenue Service on payments made under the tobacco Master Settlement Agreement. Payne sought the advice to clear up questions surrounding the year in which the payments are taxable.

Payments to tobacco growers and quota owners were mailed on December 30, 1999. Therefore, the payments were not actually received until January 2000. Most cash based taxpayers assumed that the income would not be taxable until taxable year 2000. However, the growers and quota owners received a Form 1099 indicating that the income was received and taxable for 1999.

The Internal Revenue Service has ruled that payments mailed in 1999 but not received until 2000 are not taxable for 1999 for cash basis taxpayers. Therefore, despite having received a Form 1099 identifying the payments as taxable year 1999 income, growers and quota owners do not have to report this income on their 1999 tax returns.

Commissioner Payne said, "I am pleased that we were able to work through this issue with the Internal Revenue Service so quickly. I hope that this will resolve the questions of Virginia's tobacco growers and quota owners."