June 2, 2017
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 assessments issued to ***** (the “Taxpayer”) for the taxable years ended 2012 and 2013.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia income tax returns for the 2012 and 2013 taxable years. A review of the Department's records showed that the Taxpayer had not filed any Virginia return for 2012 and had filed a 2013 Virginia part-year resident individual income tax return. Under audit, the Department determined that the Taxpayer was a Virginia resident for the taxable years at issue and issued assessments for additional tax and interest. The Taxpayer appeals the assessments, contending that he did not become a Virginia resident until May 2013.
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, the 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 providing 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, professional 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 Tax Commissioner must conclude that he or she intended to remain indefinitely in Virginia.
The Taxpayer has provided evidence indicating his intent to establish domicile in ***** (State A) to pursue employment. He rented a place of abode and was employed in State A. The Taxpayer filed a State A resident individual income tax return for 2012 and a State A part-year resident return for 2013.
The Taxpayer also maintained significant connections with Virginia. He owned a Virginia residence where his former wife and children lived. He indicates that he continued ownership of the home for the benefit of his children. The Taxpayer moved back to Virginia in 2013 when his employment in State A ended.
In addition, the Taxpayer owned three motor vehicles that were registered in Virginia. He also held a Virginia driver's license, which was renewed in November 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 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). I n this case, although the Taxpayer renewed his Virginia driver's license, he surrendered it in 2016 when he moved to ***** (State B).
As indicated above, in order for the Taxpayer to have established domicile in State A, there must be personal presence with the intent to remain there permanently or indefinitely. In this case, a preponderance of evidence has been presented to show that the Taxpayer did not abandon his Virginia domicile. Accordingly, he has failed to show that he established domicile in State A with the intent to live there permanently and indefinitely. Until intent can be established by circumstances indicating a permanent change of domicile, the Department must conclude a change has not occurred.
Credit for Taxes Paid to another State
Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia return for income taxes paid to another state provided the income is either earned or business income or gain from the sale of a capital asset. Virginia law does not necessarily allow a taxpayer to claim a credit for the total amount of tax paid to another state. Rather, the credit is limited to the lesser of the amount of tax actually paid to the other state or the amount of Virginia income tax actually imposed on the taxpayer on the income earned or derived in the other state. See P.D. 97-301 (7/7/1997). The limitation is computed by multiplying the individual's Virginia tax liability by a fraction, the numerator of which is the income upon which the other state's tax is imposed, and the denominator of which is Virginia taxable income.
In State A, all residents are required to file a resident income tax return. State A defines a resident as an individual who is in the state for other than a temporary or transitory purpose during the taxable year. It appears the Taxpayer filed returns and paid income tax to State A during the taxable years at issue in accordance with State A statutes. Under these circumstances, he may have been eligible for a tax credit for income tax paid to State A.
Audit by the Department
The Taxpayer asserts the Department had contacted him about his residency status for previous taxable years, but made no assessments. Pursuant to Va. Code § 58.1-1835, the Department must abate any portion of any tax, interest, and penalty attributable to erroneous advice furnished to a taxpayer in writing by an employee of the Department acting in his official capacity when:
- The written advice was reasonably relied upon by the taxpayer and was in response to a specific written request by the taxpayer;
- The portion of the penalty or tax did not result from a failure by the taxpayer to provide adequate or accurate information; and
- The facts of the case described in the written advice and the request therefore are the same, and the taxpayer's business or personal operations have not changed since the advice was rendered.
The Department's records provide no evidence that the Taxpayer made any written request from the Department asking for guidance concerning his residency status. Further, the fact that the Department reviewed the Taxpayer's residency status but withdrew its assessment in previous years does not mean the Department determined he was a nonresident. In addition to determining whether there is a potential liability, the Department also considers the cost effectiveness of issuing and collecting assessments. Making assessments that cost more to generate and administer than the amount of potential revenue would not be in the best interest of the citizens of the Commonwealth. As such, assessments that do not meet certain thresholds may be withdrawn.
CONCLUSION
The assessment at issue was made based on the best information available to the Department pursuant to Va. Code § 58.1-111. Because the Taxpayer was required to file Virginia income tax returns, the Department was correct in issuing the assessments. The Taxpayer, however, may have information that better represents his Virginia income tax liability for the taxable years at issue. Therefore, he should file a 2012 Virginian resident income tax return and an amended 2013 Virginia resident income tax return to more accurately reflect his Virginia tax liability.
The returns should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *****. Upon receipt, the documentation will be reviewed and assessment will be adjusted, as appropriate. If the documentation is not received within the allotted time, the assessment will be adjusted based on the 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/1042.B