Tax Type
Individual Income Tax
Description
Requested additional information not received to disprove assessment.
Topic
Domicile
Federal Conformity
Records/Returns/Payments
Residency
Date Issued
06-20-2013
June 20, 2013
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 your client, ***** (the "Taxpayer"), for the taxable years ended December 31, 2005 through 2010. I apologize for the delay in responding to your appeal.
FACTS
The Department received information from the Internal Revenue Service (IRS) that the Taxpayer may have received investment income from rental properties located in Virginia. The Department requested that the Taxpayer file the appropriate income tax returns or provide an explanation as to why the income was not taxable. When an adequate response was not received, the Department issued assessments based on the information available. The Taxpayer appeals the assessments, contending he was a resident of ***** (State A), he had no Virginia source income, and the assessments are based on inaccurate information.
DETERMINATION
Residency
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. 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 actually reside elsewhere. For a person to change domiciliary residency to another state, 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 another country who has not abandoned his Virginia residency continues to be subject to Virginia taxation.
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, sites of real and 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 of the facts and circumstances of the particular case. A simple declaration is not sufficient to establish domicile. The Department determines a taxpayer's intent through the information provided.
The Taxpayer claims that he was a resident of State A during the taxable years at issue. The Taxpayer provided documentation showing that he established a permanent place of abode and maintained a registered motor vehicle in State A.
Several activities indicate that the Taxpayer was a domiciliary resident of Virginia. He maintained a Virginia post office box in which he received financial statements for the taxable years at issue. In addition, documents obtained by the Department indicate that Taxpayer may own interest in a number of real estate properties in Virginia, one of which is the home of his mother. The Taxpayer also has held a Virginia driver's license since 1995 that was renewed in December 2010.
Virginia Code § 46.2-323.1 states, "No driver's license, shall be issued to any person who is not a Virginia resident." Every person applying for a driver's license must execute and furnish to the Commissioner of the Department of Motor Vehicles a statement that certifies the applicant is a Virginia resident. A person providing a false statement is subject to punishment under the laws of the Commonwealth. 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 (12/09/2002).
By letter dated November 11, 2011 and May 1, 2012, the Department requested the Taxpayer to provide documentation concerning his domiciliary residence. The information provided in response to these requests is not sufficient to determine the Taxpayer's domiciliary residence for the taxable years at issue. By applying for and renewing his Virginia driver's license, the Taxpayer has declared that he was a resident of Virginia. As a domiciliary resident of Virginia, the Taxpayer is required to file a Virginia resident income tax return for the 2005 through 2010 taxable years.
Virginia Source Income
The Taxpayer argues that regardless of his domiciliary status, he had no Virginia source income and, therefore, owes no Virginia income tax. Virginia Code § 58.1-320 imposes a tax on the Virginia taxable income for each taxable year of every individual regardless of the source of such income.
Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia "conforms" to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.
Third party information returns indicate the Taxpayer paid mortgage interest on a number of real properties located within Virginia. The Taxpayer contends he is the guarantor of twelve mortgaged properties located in Virginia, and has transferred all rights and interests of the properties to ***** (VALLC). The Taxpayer claims that he is not a member of VALLC, but provided no objective evidence to support this assertion. In addition, the Taxpayer has indicated that he does not have any contact information for VALLC even though he entered into multiple business transactions and is the guarantor for the mortgages on the properties. Based on the number of transactions and the nature of the business involved, the Department finds it doubtful that the Taxpayer does not have any contact information for VALLC.
Further, even if the Taxpayer were not a resident of Virginia, he may have had income from Virginia sources. Under Va. Code § 58.1-325, individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. 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 the ownership of property in Virginia or the conduct of a business, trade, profession or occupation in Virginia. As such, taxpayers who are not residents of Virginia are required to file a Virginia nonresident individual income tax return.
Virginia land records reveal that neither the Taxpayer nor VALLC is the listed owner of any of the properties in question. Neither VALLC nor any of the listed owners are registered with the Department and have never filed required income tax returns. In addition, the Department is unable to identify whether the income from these properties is being reported on another individual's income tax return. Absent evidence that the income from these properties is being reported to Virginia, and based on all other documentation reviewed, the Department has concluded that the Taxpayer earned income from the rental of real property in Virginia.
Estimated Assessments
The Taxpayer asserts the information received from the IRS was redundant causing the assessments to be excessive. The Taxpayer however, has failed to provide sufficient evidence to support his federal or state liabilities for the taxable years at issue. The Department has made several attempts to obtain information regarding the Taxpayer's residency and his involvement with the Virginia real estate, but the Taxpayer has failed to provide sufficient documentation.
When a taxpayer fails or refuses to provide documentation sufficient to calculate an accurate liability, Va. Code § 58.1-111 permits the Department to make an estimate of the amount of taxes due from any information in its possession and issue an assessment to such taxpayer. In this case, the Taxpayer has failed to provide any documentation to determine his taxable income.
Under the provisions of Va. Code § 58.1-205 any proceeding relating to the interpretation of the tax laws of Virginia, an "assessment of a tax by the Department shall be deemed prima facie correct." As such, the burden of proof is on the Taxpayer to show they were not subject to income tax in Virginia. In this case, the Taxpayer has provided no objective evidence to show that the information properly obtained by the Department is incorrect.
In addition, Va. Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the assessment was attributable to a taxpayer's willful failure or refusal to provide the Department with necessary information as required by law.
Based on the applicable law cited above and the information presented, there is no basis to abate the Department's assessments for the 2005 through 2010 taxable years. Accordingly, the assessments are upheld and remain due and payable.
I will, however, grant the Taxpayer one final opportunity to provide sufficient evidence regarding his domicile for the 2005 through 2010 taxable years. Such evidence should be provided within 30 days from the date of this letter to: Virginia Department of Taxation, Appeals and Rulings, Attention: *****, Post Office Box 27203, Richmond, Virginia 23261-7203. If the requested information is not provided within the allotted time, the assessments will become immediately due and payable.
The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's web site. If you have any questions about this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5073928306.D
Rulings of the Tax Commissioner