VA taxation of retirement benefits previously taxed in another state

A Virginia subtraction is allowed for individuals who receive distributions from retirement plans. The subtraction can be taken only if the individual was taxed on contributions originally made to the retirement plan in another state that were deductible from federal adjusted gross income during the same period. The subtraction applies to qualifying distributions from a qualified pension, stock bonus or profit-sharing plan as described by IRC Section 401, an individual retirement account or annuity established under IRC Section 408, a deferred compensation plan as defined by IRC Section 457, or a federal government retirement program. Conditions for Qualification:

• Contributions must have been made to an IRS Qualified Plan;
• The contributions must have been deductible for federal income tax purposes; and
• The contributions must have been subject to income tax in another state.

I subtracted from VA income, my pension, my wife's pension and distributions from my IRA that had been previously taxed in Pennsylvania as PA does not provide deductions for these.

I have now received a notice of assessment from the state requesting payment of taxes on the subtraction. I have gone around with their Office of Customer Services three times and have now filed an appeal with the Dept. of Taxation. In reviewing rulings, it appears that the subtraction is only for the original amounts withheld for retirement plans and any increase or growth is subject to tax. This is not clear anywhere that I can find except in Revenue Ruling Document 10-214 issued 9-15-2010. It appears that even if my appeal is found in my favor that I will need to pay tax on the growth of the retirement accounts and be hit with interest. From Document 10-214 it appears that the calculations are rather complex.

Does anyone have experience in this matter?