Residency: Nonresident - Retirement income
November 16, 2022
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayers”) for the taxable year ended December 31, 2019.
FACTS
The Taxpayers, a husband and wife, filed a part year Virginia resident return for the 2019 taxable year. Under audit, the Department requested additional information from the Taxpayers in order to determine if the correct type of return was filed and whether the correct amount of Virginia taxable income was reported. After reviewing the information provided by the Taxpayers, the auditor determined that a retirement income distribution was received by the husband during his period of Virginia residency and issued an assessment accordingly. The Taxpayers appeal, contending the husband was a resident of ***** (State A) when the distribution was received.
DETERMINATION
Residency
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Virginia Code § 58.1-302. The domiciliary residence of a person means the permanent place of residence of a taxpayer and the place to which he intends to return even though he may reside elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon his Virginia domicile with no intention of returning to Virginia. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia. A Virginia domiciliary resident, therefore, working in other parts of the country or in another country who has not abandoned his Virginia residency continues to be subject to Virginia taxation. Additionally, a person who is not a domiciliary resident of Virginia, but who stays in Virginia for an aggregate of more than 183 days is also subject to Virginia taxation.
In order to change from one legal domicile to another legal domicile, there must be (1) actual abandonment of the old domicile, coupled with an intent not to return to it, and (2) an acquisition of a new domicile at another place, which must be formed by personal presence and an intent to remain there permanently or indefinitely. The burden of proving that the domicile has been changed lies with the person alleging the change.
In determining domicile, consideration may be given to the individual’s expressed intent, conduct, and all attendant circumstances including, but not limited to, financial independence, profession or employment, income sources, residence of spouse, marital status, situs of real or tangible property, motor vehicle registration and licensing, and such other factors as may be reasonably deemed necessary to determine the person’s domicile. A person’s true intention must be determined with reference to all the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.
The Department determines a taxpayer’s intent through the information provided. A taxpayer has the burden of proving that he or she has abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Department must conclude that he or she intended to remain indefinitely in Virginia.
The husband was a domiciliary resident of State A before relocating to Virginia in August 2018 to be with his future wife, who was a Virginia resident. The Taxpayers stated that he moved to Virginia in order to see if they would like to live here together. The husband retained his residence in State A, his State A driver’s license and voter’s registration. He also kept his State A registered vehicles garaged in State A. The husband was subsequently offered a job with a new employer in State A, and the Taxpayers decided to move to State A together. In April 2019, the Taxpayers began leasing an apartment in State A and the husband began traveling between Virginia and State A moving their belongings. He began his new job in State A in June 2019.
The husband established few connections with Virginia. He lived in Virginia at his future wife’s home where he worked remotely for a ***** (“State B”) branch of his previous employer. During the week he used a State B registered vehicle provided by his employer. He did not obtain a Virginia driver’s license, register any vehicles in Virginia, or register to vote in Virginia.
As stated above, a change of domicile requires that a taxpayer prove two elements concurrently: 1) that he abandoned the old domicile and had no intent to return to it; and 2) that he established a new domicile, which must have been formed by physical presence coupled with the intent to remain permanently or indefinitely. In this case, the husband retained his State A residence, driver’s license, vehicle registrations, and voter registration, and he returned to State A within a year of moving to Virginia. In addition, he made few, if any, connections with Virginia that would normally occur when an individual makes a permanent move. After carefully considering all of the evidence presented, I find that the husband did not abandon State A as his domicile and did not evidence an intent to remain in Virginia permanently or indefinitely. In addition, the husband resided in Virginia for less than 183 days in each of 2018 and 2019. Accordingly, I find that the husband was neither a domiciliary nor actual resident of Virginia for the 2019 taxable year.
Nonresidents
Individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents, unless the individual meets the filing exception described in Virginia Code § 58.1-321. See Virginia Code § 58.1-325. The Virginia taxable income of a nonresident is computed by multiplying his Virginia taxable income (computed as if he were a resident) by the ratio of his net income, gain, loss, and deductions from Virginia sources to his net income, gain, loss, and deductions from all sources. Virginia Code § 58.1-302 limits the term income and deductions from Virginia sources to the items of income, gain, loss, and deductions attributable to (1) the ownership of any interest in real or tangible personal property in Virginia, (2) a business, trade, profession or occupation carried on in Virginia, or (3) prizes paid by the Virginia Lottery Department, and gambling winnings from wagers placed or paid at a location in Virginia. Thus, a nonresident with Virginia source income is required to file a nonresident Virginia income tax return unless the filing exemption applies. See Virginia Code § 58.1-341 A 2.
With regard to retirement income distributions, federal law provides that only an individual’s state of residency may tax the distribution. See Public Law (P.L.) 104-95, as codified at Title 4 U.S.C. § 114.
CONCLUSION
Based on the husband’s period of residency listed on the Taxpayers’ part-year Virginia resident return and the timing of the retirement distribution, it appeared that the distribution was received during the husband’s period of Virginia residence. After a careful review of the facts, however, the Department has determined that the husband was not a Virginia resident at the time the distribution was received. The wife, however, was properly considered a resident of Virginia until her move out date.
Nevertheless, in cases in which one spouse is nonresident and the other is a resident, Virginia Code § 58.1-326 permits married individuals to elect to determine their joint Virginia taxable income as if they were both residents. Considering the tax consequences in this case, it is unlikely that the Taxpayers would wish to make this election for the 2019 taxable year. When such an election is not made, Virginia Code § 58.1-326 provides that the spouse’s separate taxes shall be determined on their separate Virginia taxable incomes. The Taxpayers, therefore, will be permitted to make amended separate filings for the 2019 taxable year, the husband as a nonresident and the wife as a part-year resident. As a nonresident, the husband’s retirement distribution would not be taxable by Virginia.
The returns should be submitted within 60 days from the date of this letter to: Virginia Department of Taxation, Attn: *****, Appeals & Rulings Unit, P.O. Box 27203, Richmond, Virginia 23261-7203. Upon receipt, the returns will be reviewed and the assessment will be adjusted, as appropriate. If the returns are not received within the allotted time, the assessment will be considered correct and collections actions may result.
Further, the documents submitted with the Taxpayers’ appeal indicate they may not have reported the retirement income to State A. The Taxpayers are, therefore, advised to review the tax laws of State A and file an amended State A return, if necessary, to report such income.
The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/4109.X