October 19, 2015
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessment issued to ***** (the "Taxpayer") for the taxable year ended December 31, 2011. I apologize for the delay in responding to your appeal.
FACTS
The Department received information from the Internal Revenue Service that the Taxpayer may have income subject to Virginia income tax for the 2011 taxable year. The Department requested additional information from the Taxpayer. When no response was received, the Department issued an assessment. The Taxpayer appealed the assessment, contending her domicile status in Virginia ended in 2009 when the Servicemembers Civil Relief Act (the "Act") was amended.
DETERMINATION
Domicile
The Act, codified at 50 U.S.C. § 571 et seq., provides that military and naval personnel do not abandon their legal domicile solely by complying with military orders that station them in a different state or country whether permanently or temporarily. The Act did not apply to the spouses of military and naval personnel before 2009. The Department has ruled that the residency status of a taxpayer requires analysis separate from their military spouse. See Public Document (P.D.) 05-92 (6/9/2005) and P.D. 05-150 (9/8/2005). The Act was amended, effective for the 2009 taxable year and thereafter, to provide that a spouse can neither lose nor acquire domicile or residence in a state when the spouse is present in the state solely to be with the service member in compliance with the service member's military orders if the residence or domicile is the same for both the service member and spouse. See Virginia Tax Bulletin (VTB) 9-10 (11/12/2009) and VTB 10-1 (1/29/2010).
In VTB 10-1, the Department explained that the domicile of a military spouse must be the same as the service member in order to be exempt from Virginia's income tax. The spouse cannot simply elect to claim the service member's domicile. In order to claim a domicile in another state, the spouse must have (i) resided in the other state with the intent to make a permanent home there, and (ii) not abandoned that domicile when moving to reside with the service member or for any other reason. The determination of a military spouse's domicile requires analysis of the facts and circumstances. The elements that may be examined include:
1. Whether the person claiming exemption is married to a service member who is present in Virginia pursuant to military orders.
2. The service member's domicile.
3. The spouse's domicile and the circumstances in which it was established.
4. The extent to which the spouse has maintained contacts with the domicile.
5. Whether the spouse has taken any action in Virginia that is inconsistent with maintaining a domicile elsewhere.
In general, the Department will not seek to tax the spouse of a military service member so long as the spouse maintains sufficient connections with the service member's domiciliary state to indicate intent to maintain domicile there. Such connections would include obtaining and retaining 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 the spouse of a military service member maintains such connections, he or she would be considered to be a resident of the other state even though they work, live, and establish a place of abode in Virginia.
The Taxpayer concedes to establishing a domicile in Virginia prior to November 2009. In VTB 10-1, the Department precluded military spouses from the protections of the Act in instances where the spouse had established domicile in Virginia prior to the amendments to the Act. Because the Act was not retroactive, spouses who no longer shared the domicile of the service member would remain subject to Virginia's income tax.
The Taxpayer contends she reestablished domicile in State A during the 2010 taxable year. The information provided shows, however, the Taxpayer did not move out of Virginia until May 2011.
Virginia courts have continuously ruled that changing domicile is a two-step process. First, a person must intend to permanently move away from one domicile. Second, the person must acquire a new domicile where he intends to remain permanently or indefinitely. See Robert H. Talley v. Commonwealth of Virginia, 127 Va. 516, 103 S.E. 612 (1920), State-Planters Bank, v. Commonwealth of Virginia, 174 Va. 289, 6 S.E.2d 629 (1940), and Barbara B. Woods v. Commonwealth of Virginia, Circuit Court of Wise County and the City of Norton, Law No. 97-422 (3/20/2002).
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. In addition, these two elements must exist simultaneously. Id. See also Public Document (P.D.) 14-124 (7/25/2014). Because the Taxpayer changed her domiciliary residence to Virginia, she would need to show that she has abandoned her Virginia domicile and reestablished domicile in State A. The fact that she obtained a State A driver's license shows intent to change. However, until she is able to establish a permanent personal presence in State A, she will not be considered to have abandoned her Virginia domicile.
Part-Year Residency
The Taxpayer asserts she resided in Virginia until May 2011 when she relocated to State A. Pursuant to Va. Code § 58.1-303, a taxpayer who becomes a resident of another state during the taxable year is subject to taxation for the period in which the taxpayer was a Virginia resident. Under Title 23 of the Virginia Administrative Code (VAC) 10-110-40 B, the allowable standard deduction of a part-year resident is prorated based on that portion of federal adjusted gross income (FAGI) attributable to Virginia as compared with FAGI. In addition, personal exemptions are generally prorated by multiplying the amount of the exemption by the ratio of days of residence in Virginia to 365 days. However, if all of the FAGI of a part-year resident is attributable to Virginia, the individual may claim the allowable personal exemptions without any proration based upon days of residence.
Because the Taxpayer resided in Virginia for a portion of the 2011 taxable year, she would be considered to be a part-year resident of Virginia. Under these circumstances, the Taxpayer was required to file a 2011 part-year resident individual income tax return (Form 760 PY).
The Taxpayer should file the part-year resident return within 30 days of the date of this letter. The return should be mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23216-7203, Attention: *****. Once the return is received, it will be processed and the assessment will be adjusted accordingly. If the requested return is not filed within the allotted time, the assessment will be considered to be correct and collection action will resume.
The Code of Virginia sections, tax bulletins 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 Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5918184690.D