June 6, 2018
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you correction of the individual income tax assessments issued to ***** (the “Taxpayers”) for the taxable years ended December 31, 2009 through 2013. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayers, a husband and a wife, moved into Virginia in 2006 pursuant to military orders. The wife retired from military service in 2008. The wife filed a special claim for withholding and refunds were granted for 2009 through 2012 taxable years. Under review, the claims were denied and assessments were issued to recover the erroneous refunds. In addition, a joint assessment was issued for the 2013 taxable year. The Taxpayers filed an appeal, contending they are domiciliary residents of ***** (State A).
DETERMINATION
Domicile
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Virginia 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 actually reside elsewhere. For a person to change domiciliary residency to another state, 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.
Servicemembers Civil Relief Act
The Servicemembers Civil Relief Act (the “Act”) 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. See 50 U.S.C. § 4001. 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, codified at 50 U.S.C. § 3901 et seq., however, was amended, effective for 2009 taxable year and thereafter, to address the residency of military spouses. Specifically, 50 U.S.C. § 4001(a)(2) was enacted 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, as the case may be, is the same for the service member and the spouse.” The Act does not apply to the spouses of military and naval personnel who have established domiciliary status within Virginia. See Public Document (P.D.) 11-114 (6/21/2011). In Virginia Tax Bulletin (VTB) 10-1 (1/29/2010), 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 determination of a military spouse's domicile requires analysis of the facts and circumstances. The elements that may be examined include:
- Whether the person claiming exemption is married to a service member who is present in Virginia pursuant to military orders.
- The service member's domicile.
- The spouse's domicile and the circumstances in which it was established.
- The extent to which the spouse has maintained contacts with the domicile.
- Whether the spouse has taken any action in Virginia that is inconsistent with maintaining a domicile elsewhere.
While the Act provides that military and naval personnel and their spouses do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different state or country, it does not preclude the possibility that armed forces personnel may acquire a new legal domicile in the state where they are stationed, and thus subject themselves to taxation by that state as if they were a domiciliary resident. In order for the change of domicile to occur, there must be an abandonment of the old domicile and the acquisition of a new one. This change must be exhibited by an individual's intent and conduct. See United States of America v. Minnesota Department of Revenue, 97 F. Supp. 2d 973 (2000).
In general, the Department will not seek to tax a military service member or spouse so long as they maintain sufficient connections with another state to indicate intent to maintain their domicile. Such connections would include filing a State of Legal Residence Certificate (Department of Defense Form 2058), obtaining 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 a military service member and spouse maintain such connections, he or she would be considered to be a resident of the other state even though he or she works, lives, and establishes a permanent place of abode in Virginia.
Residency of the Military Service Member
The Department's assessment for the 2013 taxable year included income earned by the husband. According to information provided to the Department, the husband was a service member before retiring in 2012. The husband surrendered a ***** (State B) driver's license in March 2007 and obtained a Virginia driver's license. The Virginia license was renewed in July 2012 and surrendered in April 2014. In addition, Virginia Employment Commission data shows he was employed by a Virginia business from 2014 through 2016. Moreover, the fact that the husband held a State B license is an indication that the husband may have abandoned his connections to State A before moving to Virginia.
In Waite v. Dep't of Revenue, 2015 Ore. Tax LEXIS 162, 15 (December 15, 2015), the Oregon Tax Court followed Minnesota in holding that the Act did not preempt the state's use of any particular domicile factor. The court, however, stated that factors must be viewed in light of the fact that the military service member was present in the jurisdiction for a specific period of time in compliance with military orders. See id. at 17. The court stated that it would place more weight on the service member's voluntary connections with Oregon and the state he was attempting to claim as his domicile and less weight on his connections that were incidental to being present in Oregon and absent from the other state in compliance with military orders. For example, if a taxpayer merely received mail at his Oregon address or sought medical care from an Oregon provider, those facts would be given less weight because they would be incidental to being present in Oregon in compliance with orders. If the taxpayer, however, voluntarily declared that he was an Oregon resident for purposes of obtaining a hunting license or registered to vote in Oregon, those types of connections may support a finding that he intended to establish an Oregon domicile. See id. at 18-19. See also P.D. 10-237 (9/30/2010).
In this case, the husband established a voluntary connection with Virginia when he obtained a Virginia driver's license in 2007. By letter dated February 8, 2017, the Department requested documentation required to determine the service member's domicile. To date, no response has been received regarding the husband's residency status.
Residency of the Military Spouse
Several factors indicate the wife intended to retain her domicile in State A. The Taxpayers provided documents showing the wife was a registered voter of State A and participated in State A elections until 2013 when she began voting in Virginia. The Taxpayers also provided documentation showing they maintained a residence in State A. It is unclear whether the residence was available for the Taxpayers to return to or whether it was maintained for some other purpose.
The wife also took steps indicative to changing her domicile. The Taxpayers purchased a home in Virginia in which they have consistently resided or returned to since 2006. Like her husband, the wife was a military service member. She retired in 2008 and acknowledges she remained in Virginia and became a Virginia resident. She surrendered her State B driver's license in August 2009. The 2009 license appears to have been surrendered to another state. A new Virginia license was issued in April 2013 and surrendered in April 2015. The wife also registered to vote and participated in Virginia's election process from 2013 to 2016.
The Taxpayers also assert that they relocated to the ***** (Country A) during the 2009 through 2011 taxable years. They state that they registered their motor vehicles and obtained driver's licenses while the service member was stationed abroad but have provided no evidence to support these claims. The Taxpayers also indicate they returned to the Virginia at the end of the tour and later visited State A where the wife obtained a State A driver's licenses.
Although Minnesota and Waite involved the domiciliary status of service members, in the Department's opinion the principles set forth in those cases should apply to spouses as well because in each case the Act applies the same standard - domicile may not be lost or acquired by reason of being absent or present in the taxing jurisdiction solely in compliance with military orders (or, in the case of the spouse, the service member's military orders). See 50 U.S.C. § 4001(a).
When determining the domicile of military personnel and their spouse, the Department frequently examines the taxpayer's driver's license history. This is because an individual cannot typically obtain a driver's license unless he or she is a resident of the issuing jurisdiction.
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. Any applicant who knowingly makes a false statement to DMV is subject to penalties under Virginia Code § 46.2-348. The Department has found that an individual may successfully establish a domicile outside Virginia even if he/she retains a Virginia driver's license. 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).
In addition, Virginia Code § 46.2-306 specifically exempts service members on active duty, their spouses, and dependent children residing in Virginia from the requirement to obtain a Virginia driver's license when such individuals have been licensed as drivers under the laws of their home state. Accordingly, when a spouse of a military service member obtains a Virginia's driver's license, the Department considers the action to be an indication of an intent to change one's domicile.
Further, a military spouse who became a domiciliary resident of Virginia upon moving to Virginia prior to November 11, 2009 is not considered to have the same domicile as the service member and cannot qualify for exemption from income taxation by Virginia under the Act. See P.D. 11-16 (2/11/2011). The wife made a declaration that she was a resident of Virginia when she obtained a Virginia driver's license in August 2009 prior to the enactment of the military spouse provision of the Act.
The Taxpayers claim the wife was forced to become a legal resident of Virginia when she retired from the military in 2008. Prior to the 2009 amendment to the Act, the Department found that a military spouse was considered an actual resident of Virginia subject to Virginia individual income taxation as a resident, even if they were not domiciled in Virginia, because they resided in Virginia for more than 183 days during the taxable year. See P.D. 96-293 (10/18/1996). Thus, prior to the 2009 amendment of the Act, the Department acknowledged it was possible for a military spouse to follow a service member to Virginia without establishing domicile in the Commonwealth.
In such cases, however, it is incumbent upon the Department to examine all the facts and circumstances regarding the military spouse in order to determine the domiciliary residence of such individual. When the spouse moves to follow military personnel to a new duty station, they would generally abandon his former permanent place of abode, leave their employer, take or abandon personal property, and move the family. The spouse would establish a new permanent place of abode near the new duty station, enroll children in school, and seek employment of an indeterminate duration. The spouse would generally change driving permits, vehicle registrations, voting registrations, and other licenses (i.e., professional, occupational, hunting and fishing). The spouse would also change social, charitable, and church associations. Moreover, the service member and the spouse move with no assurance that they would move back to a former duty station. Under the circumstances, it seems reasonable to conclude that a military spouse would generally establish domicile in Virginia when following military personnel to Virginia and abandon Virginia domicile when following them to the next duty station. To do otherwise would require the Department investigate whether a military spouse had established domicile and abandoned domicile at every duty station prior to coming to Virginia. See P.D. 10-39 (4/8/2010). Consequently, the burden is upon the military spouse to maintain sufficient connections with another state in order to be treated as a domiciliary resident of such state.
After retiring from the military in 2008, the wife established a permanent place of abode, employment of an indefinite period, and eventually obtained a Virginia driver's license and voter's registration. Without evidence that the wife maintained domiciliary connections with State A, she would be considered to have changed her domicile to Virginia.
In 2012, the wife returned to State A temporarily in order to reestablish her domicile there. 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. Without establishing a physical presence in State A, the wife could not have established domicile there.
In addition, even if the husband were a domiciliary resident of State A, the Taxpayers have not proven that the wife shared the husband's domicile. Pursuant to the Act, the spouses must have shared the same domicile for their income to be exempt. See also P.D. 10-237 and P.D. 11-66 (4/26/2011). Based on the information provided, it is unclear whether the service member was a domiciliary resident of Virginia, State A or State B during the taxable years at issue.
CONCLUSION
As indicated above, that the Act does not prohibit a service member or spouse from acquiring domicile in Virginia when the service member or spouse has taken sufficient steps to establish domiciliary connections or fails to maintain sufficient connections in the prior domiciled. The Taxpayers appear to have established voluntary connections (i.e., driver's licenses and voting registrations) wherever it was most convenient without regard to residency laws. Under such circumstances, incidental connections become more important. The husband and the wife spent more time in Virginia than State A during the taxable years at issue, maintained residence to which the returned when they came back from Country A, and were employed in close proximity to this home when they were in Virginia.
Based on the facts and circumstances in this case, the wife became a domiciliary resident of Virginia after she retired from military service in 2008. In addition, the husband established a voluntary connection with Virginia when he declared he was a domiciliary resident to Virginia's DMV in 2007. Accordingly, the Taxpayers appear to have been domiciliary residents for all of the taxable years at issue. In addition, they likely remained Virginia domiciliary residents in subsequent years. Thus, the wife erroneously filed special claims for withholding and both the husband and the wife were subject to Virginia income tax for the 2009 through 2013 taxable years.
As indicated above, the Department requested information and documentation in order to ascertain the Taxpayers residency status during the taxable years at issue. Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct.” As such, the burden of proof is on the Taxpayer to show he was not subject to income tax in Virginia. Furthermore, Virginia Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the erroneous assessment is attributable to the taxpayer's willful failure or refusal to provide the Department with necessary information as required by law.
The assessments at issue were made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayers may have information that better represents their Virginia income tax liability for the taxable years at issue. Therefore, the Taxpayers will be granted one last opportunity to provide adequate documentation with regard to their residency status and file the appropriate Virginia income tax returns for the 2009 through 2013 taxable years. The documentation or income tax 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 and returns will be reviewed and assessment will be adjusted, as appropriate. If the documentation is not received within the allotted time, the assessments will be adjusted in accordance with this determination based on available information and collection actions may result.
The Code of Virginia sections, tax bulletin 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/1066.o