Tax Type
Individual Income Tax
Withholding Taxes
Description
Taxpayers would not abandon their current domiciles and would not be considered domiciliary residents of Virginia
Topic
Persons Subject to Tax
Taxable Income
Withholding of Tax
Date Issued
02-27-2014
February 27, 2014
Re: Request for Ruling: Individual Income Tax
Dear *****:
This will reply to your letter in which you request a ruling concerning residency for Virginia individual income tax purposes.
FACTS
Two taxpayers (Taxpayer 1 and Taxpayer 2) are considering employment offers with a Virginia business. Taxpayer 1 is currently domiciled in ***** (State A) while Taxpayer 2 is domiciled in ***** (State B). Both would commute to an office in Virginia and rent an apartment in order to have local accommodations as needed. On weekends and at times during the week, however, Taxpayer 1 would return to State A and Taxpayer 2 would return to State B. In addition, both would be required to travel outside of Virginia on business. As a result, neither Taxpayer 1 nor Taxpayer 2 (collectively, the "Taxpayers") would spend more than 183 days a year in the Commonwealth.
Taxpayer 1 would continue to own a home in State A, and his spouse and child would continue to reside there. He would also retain his State A driver's license, vehicle registration and voter's registration. In addition, he would continue to maintain banking relationships in State A and receive mail at his State A residence.
Taxpayer 2's circumstances are the same as those of Taxpayer 1 in all material respects. You request a ruling concerning whether Taxpayer 1 and Taxpayer 2 would be subject to Virginia income tax as Virginia residents.
RULING
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 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 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 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.
In this case, the Taxpayers would maintain significant connections to their current states of domicile while commuting to offices and renting apartments in Virginia. They would continue to own homes in those states. Immediate family members would live in those residences, and the Taxpayers would also return regularly to visit. In addition, they would continue to hold driver's licenses, vehicle registrations, and voter's registrations and maintain banking relationships in those states.
Based solely on the facts presented, it appears the Taxpayers would not abandon their current domiciles and would not be considered domiciliary residents of Virginia. The Taxpayers should be aware, however, that establishing connections with Virginia, such as using a Virginia address for primary financial documents or other indicators of a permanent residence in Virginia, could result in future contacts by the Department with respect to the situs of the Taxpayer's domicile. Because the determination of residency is dependent on all attendant facts and circumstances, a change in such facts could result in a change in the Department's determination in subsequent taxable years.
Further, because the Taxpayers would not spend more than 183 days a year in Virginia, they would not be subject to Virginia taxation as actual residents. The Taxpayers, however, should be aware that physical presence in Virginia for any portion of a day generally is sufficient for that day to be counted for actual residency purposes. See Public Document (P.D.) 98-183 (10/30/1998).
Nonresidents
Although they may not be residents of Virginia, the Taxpayers could still be subject to Virginia income tax as nonresidents if they have income from Virginia sources. 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.
In this case, the Taxpayers would be working out of an office located in Virginia and visiting customers in Virginia and other states. Although the facts do not indicate how the Taxpayers would be compensated, wages earned while working in Virginia or commissions earned on the accounts of Virginia customers, for example, would be Virginia source income.
Employer Withholding
Virginia Code § 58.1-461 provides that employers must withhold taxes on wages of employees. Virginia Code § 58.1-460 defines "employee" as "an individual, whether a resident or a nonresident of the Commonwealth, who performs or performed any service in the Commonwealth for wages, or a resident of the Commonwealth who performs or performed any service . . . outside the Commonwealth for wages." As such, an employee who earns wages while performing services in Virginia must have tax withheld regardless of whether the employee is a resident or a nonresident of Virginia. Usually, when an employee is a resident of Virginia, all of his wages are subject to withholding.
Under Va. Code § 58.1-461, however, an employer is not required to withhold any Virginia income tax if the employee provides a signed Employee's Virginia Income Tax Withholding Exemption Certificate (Form VA-4) that certifies that the employee incurred no Virginia income tax liability for the prior taxable year and will incur no Virginia income tax liability for the current taxable year. Form VA-4 also provides a full exemption from withholding if:
- 1. The employee expects to have Virginia adjusted gross income of less than $11,950 (single or married, filing a separate return) or $23,900 (married, filing a joint or combined return);
- 2. The employee lives in Kentucky or the District of Columbia and commutes on a daily basis to employment in Virginia, or the employee is a domiciliary or legal resident of Maryland, Pennsylvania, or West Virginia whose only Virginia source income is from salaries and wages and such salaries and wages are subject to income tax by the employee's state of domicile.
An employee can reduce or eliminate Virginia income tax withholding by submitting a Virginia Employee's Withholding Income Tax Credit for Income Taxes Paid to Another State form (Form VA-4b). This form allows an employee to estimate the credit that would be claimed by an employee for income taxes paid to another state and have his Virginia income tax withholding adjusted accordingly.
Based on the facts provided, unless the Taxpayers would not have sufficient Virginia adjusted gross income to meet the threshold for withholding, it does not appear the Taxpayers would meet any of the exemptions from withholding provided on Form VA-4 or Form VA-4b. The Taxpayers, however, may be able to adjust the amounts withheld by providing a Personal Exemption Worksheet (Form VA-4) to their employer.
For nonresident employees, several methods exist to determine the amount of wages subject to withholding. The method an employer utilizes should be the one that provides the most accurate reflection of actual Virginia source income. See P.D. 82-169 (12/02/1982), 84-62 (5/23/1984), 85-134 (6/18/1985) and 96-252 (9/27/1996).
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulation, 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/1-5546333210.M
Rulings of the Tax Commissioner