July 12, 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 assessment issued to ***** (the “Taxpayer”) for the taxable year ended December 31, 2014.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia income tax return for the 2014 taxable year. A review of the Department’s records showed that the Taxpayer had not filed a return. The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia. When a response was not received, the Department issued an assessment. The assessment has been paid through collections actions. The Taxpayer appeals, contending the Department has not proven he was a resident of Virginia.
DETERMINATION
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 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.
In addition, under Virginia Code § 58.1-325, individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents, unless the individual meets the filing exception described in Virginia Code § 58.1-321. The Virginia taxable income of a nonresident is computed by multiplying his Virginia taxable income (computed as if he were a resident) by the ratio of his net income, gain, loss, and deductions from Virginia sources to his net income, gain, loss, and deduction from all sources. Virginia Code § 58.1-302 limits the term income and deductions from Virginia sources to the items of income, gain, loss and deductions attributable to the ownership of property in Virginia or the conduct of a business, trade, profession or occupation in Virginia.
Internal Revenue Code (IRC) § 6103(d) authorizes the Department to obtain information from the Internal Revenue Service (IRS) to assist in the administration of the Commonwealth’s tax laws. According to the federal information obtained, the Taxpayer filed his 2014 federal income tax return using a Virginia address.
Virginia Code § 58.1-219 gives the Department the authority to investigate any books and records of a taxpayer in order to ascertain his proper tax liability. Prior to issuing an assessment, the Department sent to the Taxpayer a notification that such federal information had been received, and it indicated he may have been required to file a Virginia income tax return for the 2014 taxable year. A questionnaire was attached to assist the Department in making the determination whether he had a filing requirement or not. The notification clearly stated that the failure to reply would result in an assessment being issued.
When the Taxpayer failed to respond, the Department made an assessment based on the best information it had available. See Virginia Code § 58.1-111. Subsequently, the Taxpayer contacted the Department and was afforded another opportunity to submit relevant information such as another state’s resident income tax return and Form W-2 or 1099s that may have indicated the Taxpayer was not taxable as a Virginia resident. The Department has no record that the Taxpayer ever submitted such information despite his claim at that time that he filed a 2014 income tax return in another state.
Subsequently, the Taxpayer filed an appeal. By letter dated April 6, 2018, the Department requested information that would enable the Department to determine whether the Taxpayer established residency in Virginia in 2014 and if so, when. The Department also requested further information from the Taxpayer to establish the sourcing of income that was reported to the Department by the Virginia Employment Commission (VEC) as Virginia wages for the last quarter of 2014. Specifically, the Taxpayer was asked to describe what employment activities he was engaged in and where those activities took place during that quarter.
In response to that information request, the Taxpayer declined to submit the residency information. In addition, he suggested that it was the Department’s responsibility, citing Title 16 of the Virginia Administrative Code (VAC) 5-32-10, to request records from his employer verifying the sourcing of his income and his residency before issuing an assessment. The regulation cited by the Taxpayer grants the VEC authority to request certain records from employers, not the Department of Taxation. Although the Taxpayer is correct that Virginia wages reported to the VEC are not necessarily Virginia source income for individual income tax purposes, the Department still has the authority, as stated above, to investigate the books and records of the Taxpayer in order to verify whether the income was Virginia source income or not.
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 taxpayers’ willful failure or refusal to provide the Department with necessary information as required by law.
The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer may have information that better represents his Virginia income tax liability for the year at issue. Therefore, the Taxpayer will be granted one last opportunity to provide adequate documentation regarding his residency and sourcing of his income or file a 2014 Virginia resident tax return. The documentation must include completing the domicile questionnaire that was enclosed with the April 6, 2018, letter, in addition to any follow-up requests for information. He must also include a complete description of his employment responsibilities during the fourth quarter of 2014, including the specific overseas location or locations where they were conducted along with supporting documentation.
The information or return 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 information or return will be reviewed and the assessment will be adjusted, as appropriate. If the information or return is not received within the allotted time, the assessment will be considered to be correct.
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/1610.M