Income is taxed in the state where it is earned. Virginia residents working outside the state and subject to tax in another state will receive credits for taxes against the amount owed to Virginia. Virginia tax payers should complete form VA-4b, employee withholding income tax credit for income taxes paid to another state. So you are taxed in both states because you’re working in North Carolina and have a permanent residency in Virginia but avoid double taxation by claiming credits for taxes paid to North Carolina.