June 24, 2016
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 “Taxpayers”) for the taxable year ended December 31, 2012.
FACTS
The Taxpayers, a husband and a wife, filed a Virginia part-year resident individual income tax return for the 2012 taxable year, indicating that they were Virginia residents beginning in December 2012. The Department audited the Taxpayers and requested additional information concerning their residency status and the timing of a taxable distribution they received from an individual retirement account (IRA). When an adequate response was not received, the Department adjusted the return to include the distribution in the portion of the Taxpayers' income that was attributable to their period of residence in Virginia and issued an assessment. The Taxpayers appealed, contending they were still residents of ***** (State A) when they received the IRA distribution in November 2012.
DETERMINATION
Domicile
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.
In this case, the Taxpayers spent less than 183 days in Virginia in 2012. As such, they were not actual residents. Therefore, the issue becomes when the Taxpayers changed their domicile to Virginia. Any income received after such change would have been subject to Virginia income tax.
The husband accepted employment in Virginia in July 2012, moved to Virginia in August 2012, and began working in September 2012. The Taxpayers also entered into a contract to purchase a residence in Virginia in July 2012 and closed the sale in September 2012. In addition, the Taxpayers registered a vehicle in Virginia and obtained Virginia driver's licenses in October 2012.
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).
The Taxpayers also retained some connections with State A. They continued to own a residence in State A, although it sold in January 2013. The Taxpayers also indicate they were still registered to vote in State A in 2012 and voted in the 2012 election.
The Department considers placing a residence up for sale and purchasing a new residence in a different state to be strong evidence of intent to change domicile. In addition, a change of domicile can occur even if the taxpayer still owns the prior residence pending the sale. See P.D. 15-84 (4/23/2015). In addition, even if the Taxpayers used a State A voter's registration to vote in State A elections in 2012, the Taxpayers did not receive the IRA distribution until November 23, 2012, after Election Day (November 6, 2012).
The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. Where a change of domicile occurs as part of a process, the exact timing of when the true intent of an individual to change domiciliary residence is formed can be difficult to discern. Unless a change in domicile has clearly been established through the preponderance of evidence, the Department will generally consider a change to have occurred toward the beginning of the process. After carefully considering the information provided, I find that the Taxpayers have not proven that the IRA distribution was attributable to their period of residence outside Virginia.
Further, the Taxpayers took substantial steps to both abandon State A and establish connections with Virginia in September and October 2012. Accordingly, the Department finds that the Taxpayers established Virginia domicile when they closed on the Virginia home in September 2012.
Part-Year Residents
Virginia Code § 58.1-303 provides that a taxpayer who becomes a resident of Virginia or another state, as the case may be, during the taxable year is subject to taxation for the period in which he was a Virginia resident. Accordingly, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. Therefore, the Taxpayers are directed to file an amended Virginia part-year resident return to report the amount of their income, along with any applicable deductions, subtractions, additions and modifications, attributable to Virginia from the time they closed on the Virginia home to the end of 2012.
The Taxpayers should mail the return to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attention: *****, Post Office Box 27203, Richmond, Virginia 23261-7203, within 30 days from the date of this letter. Once the return is received, it will be reviewed and processed, and the assessment will be adjusted accordingly. If the return is not received within the allotted time, the Department will adjust the assessment in accordance with this determination based on the best information available.
The Code of Virginia sections 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/1-6314392222.M