August 8, 2018
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond 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. Because no return was on file, the Department requested additional information in order to determine if her income was taxable in Virginia. When the Taxpayer did not respond with sufficient information within the allowed time, an assessment was issued. The Taxpayer appeals, contending she was a resident of ***** (State A) and ***** (State B), and not subject to Virginia income tax.
DETERMINATION
Residency
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. 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, voter’s registration, 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. See Virginia Code § 58.1-205. If the information is inadequate to meet this burden, the Department must conclude that he or she intended to remain indefinitely in Virginia.
In her appeal, the Taxpayer states that she was a resident of State A and State B. The Taxpayer performed several actions indicating an intent to change her domicile. The Taxpayer rented apartments in State A and State B, and filed resident income tax returns in State A and State B.
The Taxpayer, however, maintained significant connections with Virginia. The Taxpayer had vehicles registered in Virginia, maintained her voter’s registration in Virginia, and maintained her driver’s license in Virginia. In addition, the Taxpayer indicated that she is currently a Virginia resident, which is inconsistent with an intent to permanently abandon her Virginia domicile.
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 Public Document (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, the Taxpayer was registered to vote in Virginia during the taxable year at issue. The Department has found voter registration statutes do not precisely mirror residency as it applies to income tax. Under Virginia Code § 24.2-101, an individual qualified to vote in Virginia must be a resident of the precinct in which she offers to vote. This statute requires a resident to have both legal domicile and a place of abode in Virginia. For Virginia voting purposes, domicile is determined by the intention of the individual, supported by an individual’s factual circumstances. See State Board of Elections (SBE) Policy 2009-005. See Also P.D. 17-21 (3/15/2017).
Out-of-State Tax Credit
The Taxpayer should be aware that she may claim a credit on her Virginia return for income tax paid to State A and State B. 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, derived from sources outside Virginia, and subject to Virginia’s income tax. 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.
Since the State A tax return does not identify the specific amount of State A source income subject to taxation, a special adjustment is required to determine the out-of-state credit Virginia allows. See P.D. 94-91 (3/29/1994). The allocation percentage calculated on the State A return, which is applied to the total tax to determine the tax due to State A, must be applied to the amount of State A taxable income to isolate the State A source income. The tax that would be due to Virginia on the computed State A source income then must be compared to the tax paid to State A. The lesser of the two is the amount of the out-of-state credit.
Written Advice
The Taxpayer contends that a representative of the Department informed her in November 2017 that there was nothing additional for her to do concerning her 2014 Virginia income tax liability since she filed out-of-state tax returns. Pursuant to Virginia 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.
Based on the above statutory provisions, the erroneous advice must be reasonably relied upon by the taxpayer, and such advice must be in writing. In addition, such written advice must be provided based on a specific written request by a taxpayer who has provided sufficient and accurate facts so that the Department may issue a correct decision. The Department’s records provide no evidence that the Taxpayer made any written request from the Department asking for guidance concerning her residency status.
The Taxpayer, however, did contact the Department by telephone regarding the Virginia Tax Amnesty Program notice she received. When a taxpayer chooses to pay under the amnesty terms, he or she withdraws any current protest and waives the right to an administrative or judicial appeal on the respective tax and tax period receiving amnesty benefits. See P.D. 17-156 (9/5/2017) and P.D. 18-38 (3/29/2018). The Taxpayer informed the Department that she was a resident of State A during 2014. Based on these limited facts, the Department advised the Taxpayer to disregard correspondence regarding the Virginia Tax Amnesty Program. Had the Taxpayer provided accurate information concerning her residency status, the Department’s response may have been different.
CONCLUSION
After carefully considering the information provided, the Department concludes that the Taxpayer has failed to prove that she did not maintain domicile in Virginia during the 2014 taxable year. As such, the Taxpayer remained taxable as a domiciliary resident of Virginia for the 2014 taxable year. Because of the connections established and time spent in State A and State B, the Taxpayer also may be considered a resident of those states and a domiciliary resident of Virginia and, therefore, subject to income taxation in all three states.
The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. Because the Taxpayer was required to file a Virginia income tax return, the Department was correct in issuing the assessment. The Taxpayer, however, may have information that better represents her Virginia income tax liability for the taxable year at issue. Therefore, she should file a 2014 Virginia resident income tax return to reflect more accurately her Virginia tax liability.
The 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 return will be reviewed and the assessment will be adjusted, as appropriate. If the return 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/1670C