Credit: Tax Paid Another State
January 23, 2023
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 “Taxpayer”) for the taxable year ended December 31, 2017.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia income tax return for the 2017 taxable year. A review of the Department’s records showed that the Taxpayer had not filed a return. The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia. Based on the information provided, the Department concluded that the Taxpayer was taxable as a domiciliary resident of Virginia. The Taxpayer appeals, contending he was a resident of ***** (State A).
DETERMINATION
Domicile
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 they intend to return even though they may reside elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon their 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 their 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 their 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 they have abandoned their Virginia domicile. If the information is inadequate to meet this burden, the Department must conclude that they intended to remain indefinitely in Virginia.
In this case, the Taxpayer performed some actions that may have indicated an intent to establish domicile in State A. The Taxpayer owned one residence in State A since 1998 and was leasing another there in 2017. He resided with his wife in State A for more than 300 days in 2017. The Taxpayer also worked in State A and filed a 2017 State A resident income tax return.
The Taxpayer also maintained significant connections to Virginia. He continued to own two residences in Virginia, one of which he has owned since 1988 and the other he purchased in 2005. He also continued to hold a Virginia driver’s license, which he renewed in 2017, and Virginia vehicle registrations. In addition, the Taxpayer has been registered to vote in Virginia since 1996 and voted most recently in 2020.
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 they retain 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 fact that an individual has a Virginia driver’s license is one factor to consider, among other possible factors, in any given domicile case. Nonresidents are not permitted to hold Virginia driver’s licenses. See Virginia Code § 46.2-323.1. They are, however, permitted to continue to use their licenses from their home states or countries. See Virginia Code § 46.2-307. For the purposes of Title 46.2 of the Code of Virginia, “nonresident” is generally defined as every person who is not domiciled in the Commonwealth. See Virginia Code § 46.2-100. Thus, in general, an individual must be a domiciliary resident of Virginia in order to hold a Virginia driver’s license.
Individuals who have resided in Virginia more than six months, however, are deemed to be residents for purposes of applying most of the provisions of Title 46.2 of the Code of Virginia, including the driver’s licensing provisions of Title 46.2, Chapter 3 (Virginia Code § 46.2-300 et seq.). In addition, because an individual who has been physically present and residing in Virginia for more than six months may nevertheless remain a domiciliary resident of another state or country, it may be necessary in such cases to examine additional factors to determine whether a person who has obtained a driver’s license based on physical presence and actual residency in Virginia also intended to become a domiciliary resident of Virginia. However, once it is clear that an individual has established domiciliary residency in Virginia, subsequent renewals of a Virginia driver’s license even while absent from the state will be considered very strong evidence of the individual’s intent to remain a domiciliary resident of Virginia. That is because the basis of the individual’s claim to be entitled to a Virginia driver’s license would no longer be based on the length of time they were physically present in Virginia as an actual resident, but rather on the implication that they remained a domiciliary resident of Virginia and intended to do so.
With regard to eligibility to vote, Article II, Section 1 of the Constitution of Virginia states in relevant part as follows:
In elections by the people, the qualifications of voters shall be as follows: Each voter shall be a citizen of the United States, shall be eighteen years of age, shall fulfill the residency requirements set forth in this section, and shall be registered to vote pursuant to this article.
The residence requirements shall be that each voter shall be a resident of the Commonwealth and of the precinct where he votes. Residence, for all purposes of qualification to vote, requires both domicile and place of abode.
The domicile and place of abode requirement found in the Constitution of Virginia is also reflected in the definition of “residence” or “resident” used in Virginia election statutes. See Virginia Code § 24.2-101. Consistent with the precedent established by the Virginia Supreme Court in Coopers Adm’r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917), the Department will consider the fact that a taxpayer obtained a Virginia voter’s registration and voted in elections in Virginia to be very strong evidence that that individual considered Virginia to be their domicile during the time they held and used such registration.
Although the Taxpayer emphasizes the fact that he lived and worked in State A in 2017, a person’s state of domicile may not be the same state where they were living and working at a particular time. As stated above, a change of domicile requires both establishing a new domicile and abandoning the old. These requirements must also be satisfied concurrently. In this case, it appears that the Taxpayer has owned a residence in Virginia and held a Virginia driver’s license since approximately 1988. These Virginia connections existed prior to when the Taxpayer ever began residing in State A. Accordingly, the Taxpayer was a domiciliary resident of Virginia before any time he could have potentially changed his domicile to State A. Even if the Taxpayer showed sufficient evidence of establishing domicile in State A at some time thereafter, he retained substantial indicators of intent to retain domicile in Virginia, including a driver’s license, registered vehicles, an active voter’s registration, and residences in Virginia. With such connections, an individual simply cannot be said to have evidenced an intent to abandon Virginia as their domicile.
Credit for Taxes Paid to Another State
Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia income tax returns 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 paid individual income tax to State A on income earned there. Under these circumstances, he may be eligible to claim a credit for taxes paid to State A on his Virginia resident income tax return.
CONCLUSION
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, I find that the Taxpayer was taxable as a domiciliary resident of Virginia for the 2017 taxable year. Accordingly, the assessment is upheld.
The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer may have information that better represents his Virginia income tax liability for the year at issue. Therefore, the Taxpayer should file a 2017 Virginia resident income tax return. In addition to any other information reportable on the Virginia return, it should also include a computation of the credit for tax paid to State A. The return should be submitted within 30 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 return will be reviewed and the assessment will be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be adjusted based on the best information available.
Further, in light of this determination, the Taxpayer should reevaluate his residency status for the 2018 through 2021 taxable years to determine if he had a Virginia filing requirement and, if necessary, file the appropriate returns. Under Virginia Code § 58.1-312 A, the Department may assess underreported tax at any time when a taxpayer fails to file a return or files a false or fraudulent return with the intent to evade tax.
For taxable years subsequent to the date of this determination, the Taxpayer should evaluate his intentions as to his domicile. If he intends to make State A his domicile, then his connections should reflect that. It is customary that, when individuals have the intent to change their domicile, they abandon previous connections with other states, such as driver’s licenses, vehicle registrations, voter’s registrations, and other indications of permanent residence and establish such connections in the new state. If the Taxpayer continues to hold such connections with Virginia, it is likely that he will continue to be contacted by the Department with respect to his filing status as a possible Virginia resident.
The Code of Virginia sections and public documents 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/4101.X