May 20, 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 wife, who were Virginia residents entered into a contract on February 6, 2012, to purchase a place of abode in ***** (State A). They closed on the house on February 29, 2012. Prior to the closing date, the Taxpayers purchased homeowner's and title insurance, had their utilities turned on, paid property tax, contracted a pest service, and hired pool maintenance. The wife obtained a driver's license and the Taxpayers registered their motor vehicles in State A after the closing date.
The Taxpayers filed a part-year Virginia income tax return through February 29, 2012. The Taxpayers were audited and an assessment was issued because they did not report a lump sum pension distribution that was made on February 6, 2012. The Taxpayers appeal, contending that they changed their residency to State A prior to the pension distribution.
DETERMINATION
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 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 has abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Tax Commissioner must conclude that he or she intended to remain indefinitely in Virginia.
The Taxpayers have provided sufficient documentation to show that they changed their domicile to State A. The determinative question is whether the change in residence occurred before or after the pension distribution.
The only activity in which the Taxpayers engaged to establish their residency in State A prior to the pension distribution was to sign a contract to purchase a place of abode. Activities performed by the Taxpayers in preparation of their move, such as obtaining insurance, contracting with pest and pool maintenance companies, occurred after the distribution. In addition, the Taxpayers reported that they were Virginia residents through February 29, 2012 on their 2012 return.
In Coopers 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. As such, an individual must establish a physical presence in a state in order for Virginia to consider such individual to have established domicile.
In this case, while the Taxpayers' actions clearly showed the intent to become residents of State A, they did not establish a physical presence until they closed on their home on February 29, 2012, after the date of the pension distribution. As such, any income earned prior to the closing date, including the pension distribution, was subject to Virginia income tax because the Taxpayers were still Virginia residents.
Part-Year Residents
Virginia Code § 58.1-303 provides that a taxpayer who becomes a resident of another state 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. In addition, part-year residents may claim a portion of their Virginia personal exemptions, but the exemptions will be prorated based upon the number of days that the taxpayer was a Virginia resident. Further, part-year residents may claim a prorated Virginia standard deduction if they claim the standard deduction for federal income tax purposes.
Pursuant to Va. Code § 58.1-303, part-year residents are subject to tax only on their income that is attributable to Virginia. Title 23 of the Virginia Administrative Code (VAC) 10-110-40 B specifically defines income attributable to Virginia as “that which is received during the portion of the year in which the individual is a Virginia resident; . .” [Emphasis added.]
The Taxpayers received the lump sum distribution on February 6, but did not move out of Virginia until February 29. Because the distribution was received during the portion of the year in which they were Virginia residents, the Department's adjustment to the 2012 taxable year return is correct.
Based on the foregoing, the assessment is upheld, and an updated bill will be issued. The Taxpayers should remit payment for the outstanding balance as shown on the revised bill within 30 days from the date of the revised bill to avoid the accrual of additional interest.
The Code of Virginia sections and regulations 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/1-624512318.B