October 30, 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 ***** (the “Taxpayer”) for the taxable years ended December 31, 2014 and 2015.
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 and 2015 taxable years. 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 her income was taxable in Virginia. In response, the Taxpayer claimed that she was exempt from Virginia income tax under the Servicemembers Civil Relief Act (the “Act”) because her husband was a military service member stationed in Virginia and they were both domiciliary residents of ***** (State A).
After reviewing the additional information provided by the Taxpayer, the Department determined that the Taxpayer had established domicile in Virginia and issued Virginia individual income tax assessments for the 2014 and 2015 taxable years. The Taxpayer appeals, contending she was a resident of State A.
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 she 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 her 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 her 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.
The Act, codified at 50 U.S.C. § 3901 et seq., provides that military personnel do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different state or country. The Act 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 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.
The Act, however, does not preclude the possibility that armed forces personnel or their spouses 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). The Act does not apply to military personnel or their spouses who have established domiciliary status within Virginia. See Public Document (P.D.) 11-114 (6/21/2011).
In general, the Department will not seek to tax a military service member or their 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, they would be considered to be a resident of the other state even though they work, live, and establish a permanent place of abode in Virginia.
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. The spouse will establish a new permanent place of abode near the new duty station, enroll the children in school, and seek employment of an indeterminate duration. 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. See P.D. 18-142 (7/17/2018).
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. See P.D. 17-126 (6/29/2017). 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.
It is not disputed that the Taxpayer and her military service member spouse were both residents of State A prior to moving to Virginia pursuant to the spouse’s relocation orders. While relocating and living in Virginia, however, they took some actions consistent with establishing domicile in Virginia. The Taxpayer and her spouse sold their State A home and purchased a home in Virginia, and the Taxpayer obtained a Virginia driver’s license. The Taxpayer asserts that she obtained a Virginia driver’s license only because her State A driver’s license was expiring, and that she had no intention of changing her residency.
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).
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.
Moreover, State A’s driver’s license statutes include special provisions for military personnel, their spouses, and their dependents, which allow the expiration date to lapse. This means that if the license “expires” it’s still valid, regardless of the expiration date.
Establishing domicile, however, is part of a process, and obtaining a driver’s license alone is not dispositive so long as the Taxpayer retained sufficient connections with State A. Additionally, this factor is given less weight because the Taxpayer was able to provide evidence that she forfeited her Virginia license upon her husband’s relocation to ***** (State B). As already stated above, it is also typical that a military family relocating pursuant to orders will abandon their former real property and establish a new permanent place of abode near the new duty station.
The Taxpayer and her spouse also maintained significant connections with State A. They provided evidence that the Taxpayer retained her State A voter’s registration, a State A professional license, and a State A business license. The Taxpayer also continued to work remotely for her State A employer, even after relocating to Virginia. She provided flight records, indicating that she frequently visited State A, including continued visits to her State A primary care doctor and dentist. The Taxpayer indicated that she and her spouse have significant familial connections in State A, always intended to maintain their State A residency, and intend to return there after the husband’s military service. To that end, the Taxpayer provided the husband’s leave and earnings statement (LES) and Department of Defense Form 2058 reflecting State A residency, and the Taxpayer’s last will and testament, drafted in 2014, declaring her a State A resident and requesting that she be buried in State A upon her death.
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 her 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 2014 and 2015 taxable years will be abated.
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/1718.C