June 8, 2018
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 your client, ***** (the “Taxpayer”) for the taxable years ended December 31, 2012, through 2015.
FACTS
The Taxpayer's spouse, a military service member, was a domiciliary resident of ***** (State A) and was assigned to a Virginia duty station in August 2012. In June 2014, she was assigned to a ***** (State B) duty station but commuted from their residence in Virginia. The Taxpayer filed a Virginia Special Nonresident Claim for Individual Income Tax Withheld (Form 763-S) for each of the 2012 through 2015 taxable years, claiming relief from Virginia income taxation as the spouse of a military service member under the Servicemembers Civil Relief Act (the “Act”). Under review, the Department determined that the Taxpayer was subject to Virginia income tax as a domiciliary resident of Virginia for each of the 2012 through 2015 taxable years. As a result, the refund claims were denied and assessments were issued. The Taxpayer appealed, contending he qualified for relief under the Act because he maintained a State A domicile.
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 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.
Residency of a Military Spouse
The Act, codified at 50 U.S.C. § 3901 et seq., was amended, effective for the 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.
In determining domicile, the Department will generally consider 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 and 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 of the facts and circumstances of the particular case. A simple declaration is not sufficient to establish domicile. See United States v. Minnesota, 97 F. Supp. 2d 973 (2000) (Minnesota).
The Department has typically found that when a spouse moves to follow military personnel to a new duty station, they will generally abandon their former real property and move the family. See P.D. 10-32 (4/8/2010). The spouse will 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 will generally comply with jurisdictional authorities with regard to driving permits, vehicle registrations, voting registrations, and education requirements. The spouse will also change social, charitable and church associations. Moreover, the military service member and the spouse move with no assurance that they may move back to a former duty station.
In general, the Department will not seek to tax the spouse of a military service member so long as the spouse maintains sufficient connections with the service member's domiciliary state to indicate intent to maintain domicile there. Such connections would include obtaining and retaining 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 the spouse of a military service member maintains such connections, he or she would be considered to be a resident of the other state even though they work, live, and establish a place of abode in Virginia.
In P.D. 15-186 (9/28/2015), the Department suggested, given the language of the Act, that certain activities conducted by a military spouse, such as the spouse's profession or employment, income sources, permanent place of abode, enrolling children in local schools, and situs of real and tangible property, may no longer be considered to be activities associated with establishing domicile in a state. While such activities may normally be considered to be incidental to a spouse's presence in the state as a result of the service member's military orders, they will be considered when there appears to be an affirmative choice to make their current state of residence their domicile.
In addition, the Department has repeatedly stated that a change of domicile occurs as part of a process in which no single factor is dispositive. See, e.g., P.D. 10-180 (8/16/2010), P.D. 11-90 (6/2/2011), and P.D. 13-115 (6/26/2013). Therefore, more weight may be assigned to such factors to the extent any continued after the service person retired or was reassigned elsewhere from a Virginia duty station. The Department would consider the fact that any such connections continued to be evidence that a taxpayer initially intended to establish a Virginia domicile.
The Taxpayer established a number of connections with Virginia after his spouse was transferred to a Virginia duty station in August 2012. He and his spouse purchased a personal residence in Virginia in July 2012, and they still reside there even after his spouse was transferred to a State B duty station in June 2014. He also registered two vehicles in Virginia and obtained a Virginia driver's license.
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).
The Taxpayer claims that the DMV instructed him he had to obtain a driver's license because he was not an active duty military service member. 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 service member or spouse obtains a Virginia driver's license, the Department considers the action to be an indication of an intent to change one's domicile. The Department, however, may give the driver's license factor less weight in such cases if the service member or spouse provides evidence that they are no longer entitled to hold a driver's license in the home state, or that it was impossible or impractical to do so. The Taxpayer has not provided any such evidence in this case.
The Taxpayer also retained some connections with State A. He continued to own a personal residence in State A and continued to vote using his State A voter's registration. The Department considers obtaining a Virginia voter's registration and voting in Virginia elections to be very strong evidence of intent to establish a Virginia domicile. Similarly, the Department will consider the fact that an individual retains another state's voter's registration and is actually using it to vote in that state's elections to be strong evidence of intent to retain domicile in that state.
As stated above, normally the Department will assign additional weight to a military spouse's continued connections with Virginia after the service member has been reassigned to a duty station outside Virginia. It appears, however, that the Taxpayer's spouse was assigned to a State B duty station that was close enough to commute to from their Virginia residence. The Department, therefore, will not assign additional weight to the connections the Taxpayer retained with Virginia after his spouse was reassigned to the State B duty station.
The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. After carefully considering the evidence presented, I find that the Taxpayer did not complete the process of changing his domicile from State A to Virginia. Because both spouses shared a State A domicile, the Taxpayer was protected by the Act. Accordingly, the assessments issued to the Taxpayer for the 2012 through 2015 taxable years will be abated. In addition, the refund claims for those years will be processed, subject to verification of the amounts of Virginia income tax withheld.
While the Department concedes that the Taxpayer was not a domiciliary resident of Virginia, the Taxpayer should be aware that continuing connections with Virginia, such as retaining a Virginia driver's license or other indicators of a permanent residence in Virginia will likely result in future contacts by the Department with respect to the situs of the Taxpayer's domicile. As in any determination, a change in the facts and circumstances could result in a change in the Department's determination in subsequent taxable years.
The Code of Virginia sections 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/1580.M