Tax Type
Individual Income Tax
Description
The Service Members Civil Relief Act
Topic
Domicile
Persons Subject to Tax
Servicemembers Civil Relief Act
Taxable Income
Date Issued
08-13-2013
August 13, 2013
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the Virginia individual income tax assessments issued to ***** (the "Taxpayers") for the taxable years ended December 31, 2009 and 2011.
FACTS
The Taxpayers, a husband and wife, filed a Virginia income tax return as residents for the 2009 taxable year. In determining their Virginia taxable income, the Taxpayers claimed subtractions for the husband's basic military pay and combat duty pay. Under audit, the Department disallowed the subtraction for combat duty pay and issued an assessment.
For the 2011 taxable year, the Taxpayers filed a Virginia nonresident return allocating the wife's income to Virginia. Information obtained during the audit of the 2009 return, however, indicated that the husband continued to be a Virginia resident in 2011. As a result, the Department recomputed the Taxpayers' Virginia income tax liability and issued an assessment. The Taxpayers appeal the assessments, contending that the husband was a resident of ***** (State A) during 2009 and 2011.
DETERMINATION
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.
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 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.
The Service Members Civil Relief Act (the "Act"), codified at U.S.C. § 571 et seq., provides that military personnel do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different state or country. The Act, however, does not preclude the possibility that armed forces personnel may acquire a new legal domicile in the state where they are stationed, and thus subject themselves to taxation by that state as if they were a domiciliary resident. In order for the change of domicile to occur, there must be an abandonment of the old domicile and the acquisition of a new one. This change must be exhibited by an individual's intent and conduct. See United States of America v. Minnesota Department of Revenue, 97 F. Supp. 2d 973 (2000).
In general, the Department will not seek to tax an active duty military service member so long as the member maintains sufficient connections with another state to indicate intent to maintain domicile there. Such connections would include filing a State of Legal Residence Certificate (Department of Defense Form 2058), obtaining a driver's license, registering to vote and voting in local elections, registering an automobile, and exercising other benefits or obligations of a particular state. As long as a military service member maintains such connections, he would be considered to be a resident of the other state even though he works, lives, and establishes a permanent place of abode in Virginia. See Public Document (P.D.) 10-237 (9/30/2010) and P.D. 13-91 (6/10/2013).
The Taxpayers provided some evidence to show the husband retained domicile in State A. The husband purchased a residence in State A, filed resident tax returns, and listed State A as his military "home of record." The house was purchased in 2005, after the husband was stationed in Virginia. In addition, it does not appear that the husband has occupied the State A house other than brief stays while visiting his family. The house is occupied by several members of his extended family.
The State A returns were filed jointly, as if each spouse were a State A resident. Although State A exempted the husband's military income from taxation because he was on federal active duty outside the state, the wife was clearly not a resident of State A. In fact, the Taxpayers reported no liability to State A for the taxable years at issue.
In addition, a service member's "home of record" refers to the state from which a service member entered the military. Its primary purpose is determining military benefits such as travel entitlements upon separation from service. Depending on the circumstances, a service member's state of legal domicile and home of record might be the same. That is not true, however, for all service members. A change of domicile results from the establishment of a new residency in fact, coupled with an intent to abandon the old domicile and remain in the new, regardless of what state is listed as the home of record.
The husband also performed a number of actions indicating a change of domicile to Virginia. The husband was transferred to a Virginia duty station in 2003. He began filing Virginia income tax returns as a resident for certain taxable years beginning with the 2005 taxable year. He also obtained a Virginia driver's license in 2005 and renewed it in 2012. In addition, the husband registered motor vehicles, registered to vote, and purchased a residence in Virginia.
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 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).
In addition, Va. Code § 46.2-306 specifically exempts service members on active duty, their spouses, and dependent children residing in Virginia from the requirement to obtain a Virginia driver's license when such individuals have been licensed as drivers under the laws of their home state. Accordingly, when a service member obtains a Virginia's driver's license, the Department considers the action to be an indication of an intent to change one's domicile. In this case, the husband obtained a Virginia driver's license in 2005 and renewed in 2012.
In 2008, the husband also registered to vote in Virginia. Because service members are permitted to retain their domiciliary residence in their home record, 42 U.S.C. § 1973ff-1 requires states to establish procedures in order to permit absentee voting in federal elections for absent uniformed services voters. As such, when military service personnel choose to register to vote in Virginia, it is considered to be an indication that the individual desires to abandon their former domiciliary residence and establish domicile in Virginia.
Based on the evidence provided, the husband took sufficient steps to abandon his State A domicile sometime during the 2005 taxable year. After being contacted by the Department, the husband obtained a State A driver's license and voter's registration. Although he may have had the intent to reestablish domicile in State A in 2013, the husband did not take those actions until after he learned the Department considered him to be a Virginia resident. As such, the Department must conclude the husband was a domiciliary resident of Virginia during the 2009 and 2011 taxable years.
Further, in Cooper's Adm'r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917), the Virginia Supreme Court ruled that acquiring domicile in another state requires both intent and personal presence. Because the husband changed his domiciliary residence to Virginia, he would need to show that he has abandoned his Virginia domicile and reestablished domicile in State A. The fact that he obtained a State A driver's license and voter registration show intent to change. However, until the husband is able to establish a permanent personal presence in State A, he will not be considered to have abandoned his Virginia domicile.
In accordance with this determination, the Department's assessments are upheld. The Taxpayers will receive updated bills with interest accrued to date. The Taxpayers should remit payment within 30 days from the date of the bills to avoid the accrual of additional interest.
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 ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5379401054.M
Rulings of the Tax Commissioner