Tax Type
Individual Income Tax
Description
Taxpayers were not residents of Virginia for the taxable year at issue
Topic
Domicile
Filing Status
Records/Returns/Payments
Residency
Date Issued
04-02-2014
April 2, 2014
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 "Taxpayers") for the taxable year ended December 31, 2009.
FACTS
The Taxpayers, husband and wife, were residents of ***** (State A). In 2006, the husband accepted a position with an employer in ***** (State B), and purchased a home in Virginia. The wife remained in State A.
The Taxpayers filed a joint resident income tax return in Virginia for the 2009 taxable year. They reported only part of their federal adjusted gross income (FAGI) to Virginia. Under audit, the Department adjusted the FAGI to match the amount reported on the federal return.
In response, the husband filed an amended separate Virginia resident return, again allocating half of the FAGI to Virginia on the basis that the other half was attributable to State A. Under review, the Department adjusted the amended return to reflect the total amount of FAGI reported on the federal return and issued an assessment.
The Taxpayers appeal the assessment, contending that the husband was a resident of both Virginia and State A, his method of allocating income was reasonable, and the Department should accept the original return as filed.
DETERMINATION
Original Return
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 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.
In this case, the Taxpayers filed a joint Virginia resident return but reported only a portion of their FAGI to Virginia. Because the computation of Virginia income tax for residents begins with FAGI, the Taxpayers were required to report the entire amount of FAGI on their Virginia return. See Va. Code §§ 324 B 1 and 322 A.
Amended Return
Virginia Code § 58.1-326 provides, "If husband or wife is a resident and the other is a nonresident, separate taxes shall be determined on their separate Virginia taxable incomes on such single or separate forms as may be required by the Department, unless both elect to determine their joint Virginia taxable income as if both were residents." (Emphasis added.)
If spouses have filed a joint federal income tax return and not elected to file a joint Virginia income tax return, then items of income, deductions, and exemptions must be allocated for Virginia income tax purposes pursuant to the provisions of Va. Code § 58.1-324. See Public Document (P.D.) 12-94 (7/11/2012). Specifically, Va. Code § 58.1-324 C 1 states, "Income shall be allocated to the spouse who earned the income or with respect to whose property the income is attributable." Further, Title 23 of the Virginia Administrative Code (VAC) 10-110-190 B provides that each spouse must account separately for items of income, deductions, and exemptions. However, when such items cannot be accounted for separately, deductions and personal exemptions must be proportionally allocated between each spouse based upon the income attributable to each. See also P.D. 95-251 (9/29/1995).
The information provided indicates the wife did not earn any income during the taxable year at issue. The husband, therefore, was required to allocate all of the FAGI to himself on the amended return. Again, because the Virginia income tax computation starts with FAGI, all of the FAGI must be reported on the Virginia return. Likewise, because all of the income was attributable to the husband, he was entitled to claim all of the itemized deductions. As such, the Department's adjustments to the amended return were correct, and the assessment will stand provided that the husband was, in fact, a Virginia resident for income tax purposes.
Residency
During the course of the appeal, questions have been raised as to the husband's residency status. While the wife remained a resident of State A, the husband has indicated that he considered himself to be a resident of both State A and Virginia.
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 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.
After retiring in 2005 from his primary career based in State A, the husband accepted a job in State B and moved to Virginia. Shortly thereafter, he purchased a residence in Virginia. He also registered to vote and registered several vehicles in Virginia. In addition, he obtained a Virginia driver's license.
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).
Although the husband established a number of connections with Virginia, he spent less than 183 days in Virginia during 2009. His employment required him to travel extensively, and he spent a significant portion of the year in State A. The husband also retained connections to State A. He continued to own a home in State A in which his wife lived and to which he returned approximately two months each year. He owned several vehicles that were registered in State A. In addition, he retained his medical practitioner in State A.
According to the husband, he accepted employment in State B intending that it would be a temporary opportunity. The engagement was extended, but the husband expects it will end soon. At that time, he expects to sell the Virginia residence and return to State A.
The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. Although the husband took significant steps to change his domicile to Virginia, he did not abandon his State A domicile. He continued to maintain property in State A and returned on a regular basis to visit his wife and participate in activities sponsored by organizations with which he was associated. In addition, the employment in State B does not appear to be permanent. As such, the husband was not a domiciliary resident of Virginia for the 2009 taxable year. Because the Taxpayers were neither domiciliary nor actual residents of Virginia, they were not required to file a 2009 resident income tax return.
Nonresident Individuals
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.
During the 2009 taxable year, the husband earned wages from employment based in State B. The husband also had income from a partnership. The information provided, however, indicates that the income was not from Virginia sources. The husband's only other source of income was interest from personal bank accounts and investments. As such, it does not appear that the husband had any income from Virginia sources during the taxable year at issue.
CONCLUSION
The evidence indicates that the Taxpayers were not subject to Virginia income tax either as residents of Virginia or recipients of Virginia source income for the 2009 taxable year. Accordingly, the Department will abate the assessment and issue a refund of any Virginia income taxes withheld for the 2009 taxable year less any refund the Taxpayers have already received.
In addition, it is my understanding that the Taxpayers filed Virginia resident income tax returns for other taxable years. The Taxpayers should re-evaluate whether they have any liability for Virginia income taxes in light of the analysis in this determination. If the Taxpayers find that their Virginia income tax liability differs from what they have reported, they should file the appropriate amended return and attach a copy of this determination. If the Taxpayers determine that any Virginia income taxes were erroneously withheld for any taxable year in which they have not filed an income tax return, they should also file a Virginia Special Nonresident Claim For Individual Income Tax Withheld form (Form 763-S) and attach a copy of this determination as well. The Department will only issue refunds for returns filed within the applicable statute of limitations.
While the Department concedes that the Taxpayers were not residents of Virginia for the taxable year at issue, the Taxpayers should be aware that continuing connections with Virginia, such as possession of a Virginia driver's license, registering to vote, owning real property or other indicators of a permanent residence in Virginia, will likely result in future contacts by the Department with respect to the situs of the Taxpayers' domicile. As in any determination, a change in the facts and circumstances could result in a change in the Department's determination in subsequent taxable years. In particular, continuing to maintain such connections over a longer period of time may indicate that the husband has, in fact, abandoned his State A domicile.
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 determination, you may 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/1-5386247647.M
Rulings of the Tax Commissioner