Rulings of the Tax Commissioner

November 16, 2022

Re:    § 58.1-1821 Application: Individual Income Tax
    
Dear *****:

This will reply to your letter in which you seek correction of the individual income tax assessments issued to ***** (the “Taxpayer”) for the taxable years ended December 31, 2013 through 2015.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia income tax returns for the 2013 through 2015 taxable years. A review of the Department’s records showed that the Taxpayer had not filed returns for those years. The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia. Based on the information received from the Taxpayer, the Department issued an assessment for each year. Subsequently, the Taxpayer filed a 2014 Virginia part year return claiming a credit for tax paid to ***** (State A). The Department made several adjustments to this return, including disallowing the out-of-state credit, and issued a revised assessment. The Taxpayer appeals, contending he paid all taxes owed to Virginia for the 2013 and 2014 tax years, and that he was a resident of State A in 2015.

DETERMINATION

Filing Requirements for Residents

Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Virginia Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return. When a resident does not file a Virginia income tax return, Internal Revenue Code (IRC) § 6103(d) authorizes the Department to obtain information from the Internal Revenue Service (IRS) that will help in determining the resident’s tax liability.  

The Taxpayer concedes that he was a Virginia resident for the 2013 taxable year. The assessment issued to the Taxpayer was based on information provided by the IRS indicating that the Taxpayer had filed a federal income tax return for the taxable year in question, and had sufficient income to meet the filing threshold. As such, he was required to file a Virginia income tax return. The Taxpayer contends that he paid all the taxes due for the 2013 taxable year. While Virginia income tax was withheld from his wages for that year, the Department’s records show the amount withheld was less than the Taxpayer’s Virginia tax liability.

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 Taxpayer states that he moved to State A in 2014 and remained in State A until moving to ***** (State B) in 2016. The Taxpayer leased a personal residence in State A, but it does not appear that he established further connections with State A such as a driver’s license, vehicle registration or voter’s registration. The Taxpayer retained a Virginia driver’s license until exchanging it for a State B license in 2016. He also registered to vote in State B in 2016.

Virginia Code § 46.2-323.1 states, “No driver’s license ... shall be issued to any person who is not a Virginia resident.”  In fact, this section states that every person applying for a driver’s license must execute and furnish to the Commissioner of the Department of Motor Vehicles (DMV) a statement that certifies that the applicant is a Virginia resident. The Department has found that an individual may successfully establish a domicile outside Virginia even if he retains a Virginia driver’s license. See Public Document (P.D.) 00-151 (8/18/2000). However, obtaining or renewing a Virginia driver’s license is considered to be a strong indicator of intent to retain domiciliary residency in Virginia. See P.D. 02-149 (12/9/2002).

The Department acknowledges that a change of domicile occurs as part of a process in which no single factor is dispositive. After carefully considering all of the evidence presented, the fact that the Taxpayer did not establish further connections in State A such as a driver’s license, vehicle registration or voter’s registration, raises doubt as to his intent to establish domicile there. As stated above, the Taxpayer in this case bears the burden of proving a change of domicile occurred. It is insufficient, by itself, that a taxpayer have the intent to abandon Virginia domicile. In order for the domicile change to be complete, he must also have established domicile elsewhere. I find, however, that the Taxpayer subsequently moved to State B with the intent to establish domicile there as evidenced by the exchange of driver’s license, acquisition of voter registration, and his having remained there since 2016. Accordingly, I find that for the 2015 tax year, the Taxpayer was still a domiciliary resident of Virginia and thus was required to file a 2015 Virginia income tax return.

Part Year Returns

Virginia Code § 58.1-303 provides that a taxpayer who becomes a resident of another state during the taxable year is subject to taxation for the period in which he was a Virginia resident. Accordingly, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. In addition, part-year residents may claim a portion of their Virginia personal exemptions, but the exemptions will be prorated based upon the number of days that the taxpayer was a Virginia resident. Further, part-year residents may claim a prorated Virginia standard deduction if they claim the standard deduction for federal income tax purposes.

The Taxpayer filed a 2014 part-year income tax return with both Virginia and State A. The Department made several adjustments to this return. First, the Department increased the prorated amounts the Taxpayer claimed for the standard deduction and personal exemption. The Department also denied an amount the Taxpayer claimed as a further deduction from Virginia adjusted gross income for which he did not provide a supporting schedule. In addition, the Department denied the credit he claimed for income tax paid to State A. These adjustments resulted in an assessment of additional tax due.

On appeal, the Taxpayer does not appear to dispute these adjustments. Rather, the Taxpayer contends the Department did not use the correct amount of federal adjusted gross income (FAGI) in computing his Virginia taxable income. The amount of FAGI the Department used matched the FAGI the Taxpayer reported on the Virginia return. Upon review, however, it appears that the Taxpayer mistakenly reported his total unadjusted income as his FAGI.

In light of the Department’s conclusion that the Taxpayer did not successfully change his domicile to State A, however, the Taxpayer remained taxable as a domiciliary resident of Virginia for the entire 2014 taxable year. This change in filing status will render any adjustment that was made solely based on the Taxpayer’s status as a part-year resident moot.

Credit for Taxes Paid to Another State

Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia income tax return for taxes paid to another state provided the income is either earned or business income. Virginia law does not necessarily allow a taxpayer to claim a credit for the total amount of tax paid to another state. Rather, the credit is limited to the lesser of the amount of tax actually paid to the other state or the amount of Virginia income tax actually imposed on the taxpayer on the income earned or derived in the other state. See P.D. 97-301 (7/7/1997). 

In this case, the Taxpayer states that he paid individual income tax to State A on wages earned there. Under these circumstances, the Taxpayer may be eligible to claim a credit for taxes paid to State A for the 2014 and 2015 taxable years. 

CONCLUSION

The 2013 and 2015 assessments at issue were made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer, however, may have information that better represents his Virginia income tax liability for the year at issue. In addition, the Taxpayer incorrectly filed a part-year return for 2014.

For all of the taxable years at issue, the Taxpayer may have information that may more accurately reflect his Virginia income tax liability. Accordingly, the Taxpayer should file 2013, 2014, and 2015 Virginia resident income tax returns. In addition, the Taxpayer will be permitted to claim credit for income tax paid to State A for the 2014 and 2015 taxable years to the extent allowed under Virginia Code § 58.1-332. 

The returns should be submitted within 60 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *****. Upon receipt, the returns will be reviewed and the assessments will be adjusted, as appropriate. If the returns are not received within the allotted time, the assessments will be considered to be correct.

The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. 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/4102.Y