December 11, 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 your clients, ***** (the "Taxpayers"), for the taxable year ended December 31, 2013.
FACTS
The Taxpayers, a husband and a wife, filed a nonresident Virginia individual income tax return for the 2013 taxable year. The Department selected the return for audit and requested additional information concerning the Taxpayers' residency. When a response was not received, an assessment was issued. The Taxpayers filed an appeal, contending the wife moved to ***** (State A) in April 2013 and the husband was a resident of ***** (State B) for the entire year.
DETERMINATION
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.
The Department determines a taxpayer's intent through the information provided. A taxpayer has the burden of proving that he or she abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Department must conclude that he or she intended to remain indefinitely in Virginia.
Husband
The Taxpayers have presented some evidence that the husband was a domiciliary resident of State B during the 2013 taxable year. In 2012, he obtained a State B driver's license and by January 2013 was residing primarily at a family member's home in State B. His primary source of income was from a State B LLC, of which he owned a 95% membership interest and which apportioned approximately 95% of its income to State B on its 2013 State B business tax returns. The husband also registered to vote in State B in 2014. In addition, he registered a vehicle in State B in November 2014.
The husband also maintained some connections with Virginia. He and his wife continued to own a personal residence in Virginia. They also owned a vehicle that was registered in Virginia and some unimproved real property. In addition, he was employed by a Virginia university and returned to Virginia periodically to teach courses and perform other duties for approximately 60 days during the 2013 taxable year.
The Taxpayers, however, placed the Virginia residence up for sale in March 2013, and it sold in July 2014. During this time, the residence was occupied by an unrelated caretaker, but the husband did stay there occasionally when he returned to Virginia. When it was sold, the Taxpayers also sold the vehicle that was registered in Virginia.
Wife
The Taxpayers concede that the wife remained taxable as a domiciliary resident of Virginia prior to April 2013 because she remained at their Virginia residence part of the time to prepare it for sale and to wait for renovations to be completed on a new residence in State A. The wife then began residing exclusively at the State A residence. The wife provided consulting services for the State B LLC from the State A residence and also home schooled one of their children there. She also registered a vehicle in State A in February 2014 and obtained a State A driver's license in August 2014.
The wife also maintained some connections with Virginia. In addition to co-owning the Virginia residence, the unimproved real property and the vehicle that was registered in Virginia, she owned another residence in Virginia that was used as a rental property. In addition, she retained her Virginia driver's license during the 2013 taxable year.
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 Public Document (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).
CONCLUSION
The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. After carefully weighing all of the evidence, I find that the husband was not taxable as either a domiciliary or actual resident of Virginia for the 2013 taxable year. In addition, although the wife delayed obtaining a State A driver's license and vehicle registration until 2014, I find that the preponderance of the evidence indicates that she successfully changed her domicile to State A beginning in April 2013.
Accordingly, the Taxpayers are directed to file 2013 Virginia individual income tax returns as follows: the wife must file a part-year resident return to report her entire income earned through March 2013. This return may be filed separately or jointly with the husband. If the Taxpayers choose to file jointly, however, their joint Virginia taxable income would be determined as if both were Virginia residents from January through March 2013. See Va. Code § 58.1-326 and Title 23 of the Virginia Administrative Code (VAC) 10-110-190. In addition, the husband would file a nonresident individual income tax return to report his Virginia source income for the remainder of the taxable year. If the Taxpayers choose to file separately, however, the husband must file a nonresident return and report his Virginia source income for the entire year. Because the Taxpayers indicate that the wife had no Virginia source income after her period of Virginia residency was over, the Taxpayers would not be permitted to file a joint nonresident return in either case.
The Taxpayers should file the requested returns within 30 days of the date of this letter. Please mail the returns to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attention: *****, P.O. Box 27203, Richmond, Virginia 23218-7203. Once the returns are received, they will be processed and the assessment adjusted accordingly. If the returns are not filed within the allotted time, the assessment will be considered correct and collection action will resume.
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 Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6048700944.M