Tax Type
Individual Income Tax
Description
Servicemembers Civil Relief Act, Residency
Topic
Filing Status
Residency
Servicemembers Civil Relief Act
Date Issued
12-05-2013
December 5, 2013
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek the correction of the individual income tax assessments issued to ***** (the "Taxpayer") for the taxable years ended December 31, 2009 and 2011. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer served in the military from May 2003 to September 2011. During the taxable years at issue, she resided in Virginia. The Taxpayer earned income from her military service and income from employment outside the military.
The Taxpayer filed a Virginia resident income tax return for the 2009 taxable year. She excluded income attributable to her military service from the amount of federal adjusted gross income (FAGI) reported to Virginia. Under audit, the Department determined that the Taxpayer was a Virginia nonresident for the 2009 taxable year. The Department adjusted the Taxpayer's return accordingly, treating only the Taxpayer's wages from her non-military employment as Virginia source income subject to tax. The adjustments resulted in an additional liability, and the Department issued an assessment.
The Taxpayer also filed a Virginia resident return for the 2011 taxable year. The Taxpayer added her military income back to the full amount of her FAGI, which resulted in the Taxpayer reporting a higher FAGI to Virginia than she reported on her federal return. The error resulted in the Virginia return showing tax due. When the Taxpayer did not remit payment, the Department issued an assessment.
The Taxpayer filed an appeal for both taxable years. She contends the Department improperly assessed taxes against her military income.
DETERMINATION
2009 Taxable Year
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 Servicemembers 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 servicemember 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).
In this case, the Taxpayer was not a resident of Virginia for the 2009 taxable year. Virginia Code § 58.1-321 B, however, provides that members of the armed forces who are stationed in Virginia, who are not domiciled in Virginia, are not subject to income tax on compensation received from their military service. Such individuals, however, are still subject to Virginia income tax as nonresidents if they have other income from Virginia sources. See P.D. 05-92 (6/9/2005).
The Virginia taxable income of a nonresident is defined under Va. Code § 58.1-325 as "an amount bearing the same proportion to his Virginia taxable income, computed as though he were a resident, as the net amount of his income, gain, loss and deductions from Virginia sources bears to the net amount of income, gain, loss and deductions from all sources." In addition, Va. 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. See also Title 23 of the Virginia Administrative Code (VAC) 10-110-180.
The 2009 assessment reflects taxes due on income from the Taxpayer's employment outside the military. Information provided by the Taxpayer, however,
indicates she performed her job duties in ***** (State A), not Virginia. Aside from salaries, the Taxpayer's only other source of income was interest. In P.D. 05-92, the Department concluded interest income would be attributed to a nonresident's state of domicile unless it is income from intangible personal property employed by an individual in a business, trade, profession or occupation. Based on the evidence, the Taxpayer had no income from Virginia sources for the 2009 taxable year.
2011 Taxable Year
In September 2011, the Taxpayer retired from military service. When the Taxpayer left military service, the protection afforded under the Act no longer applied. A servicemember living in Virginia at the time he is discharged from the military will generally be considered to be a resident of Virginia unless he takes steps to reside elsewhere. In this case, the Taxpayer indicates that she intended to become a domiciliary resident of Virginia in 2011.
Virginia Code § 58.1-303 provides that an individual who becomes a resident of Virginia is subject to taxation during the period in which he is a Virginia resident and is taxed as a resident only for the portion of the taxable year that he resides in Virginia. Because the Taxpayer did not become a resident of Virginia until September 2011, she would be considered to be a part-year resident for the 2011 taxable year.
CONCLUSION
In accordance with this determination, the Department will abate the assessment for the 2009 taxable year and refund the amount of the assessment that the Taxpayer paid. Further, in conjunction with the review of this appeal, the Taxpayer filed an amended 2011 return reflecting her part-year residency status. Based on that return, the Department abated the 2011 assessment and issued a refund.
The Code of Virginia sections 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/1-5397899035.M
Rulings of the Tax Commissioner