May 9, 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, 2013, and 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 2013 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 her income was taxable in Virginia. The Taxpayer responded to the information request, contending that she was a resident of ***** (State A) and was not otherwise required to file a Virginia income tax return. The Department requested further information to determine the Taxpayer's residency. When a response was not received, an assessment was issued. Subsequently, the assessment was paid through collection actions.
The Taxpayer contested the collection actions and submitted further information to show she was a resident of State A. Under review, the Department determined that the Taxpayer was taxable as a domiciliary resident of Virginia for both the 2013 and 2014 taxable years, and an additional assessment for the 2014 taxable year was issued. The Taxpayer appeals, contending she was a resident of State A. In the alternative, if the Department determines that she remained taxable as a domiciliary resident of Virginia, the Taxpayer requests a waiver of any assessed penalties and interest.
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 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, 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. If the information is inadequate to meet this burden, the Department must conclude that he or she intended to remain indefinitely in Virginia.
The Taxpayer began residing in State A in 2001, when her husband obtained a position at a university in State A. They owned two homes in succession in State A. In 2011, the husband obtained another position at a university in ***** (State B), but the Taxpayer remained in State A.
The Taxpayer and her husband divorced in 2013. The Taxpayer represented that she was a resident of State A during a court proceeding concerning the divorce. She was given the State A home they owned at the time, but it was required to be sold as a part of the divorce settlement. After it was sold, she began to lease a personal residence in State A. She also obtained health insurance from a State A insurance provider.
The Taxpayer also retained numerous connections with Virginia. She and her husband owned a home in Virginia, which she was granted as a part of the divorce settlement. Since at least 2005, information returns had been sent to that address, and her 2013 State A and federal income tax returns were filed using that address. She also had at least one vehicle registered in Virginia during both 2013 and 2014, and another that had been registered in State A until it was moved to Virginia in 2014. In addition, she was registered to vote and voted full ballots in each general election held in her Virginia voting district since at least 2008. Further, she held a Virginia driver's license, which she renewed in January 2011.
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).
The Taxpayer asserts that the residence in Virginia was kept as a vacation home, at which she stayed less than 60 days a year. Although she returned to Virginia only once between 2001 and 2014, the home was maintained throughout that period. The facts that the home was used by the Taxpayer and her family on a regular basis, the dwelling was never rented to unrelated third parties, the furnishings were left and maintained, and an automobile was parked at the residence seem inconsistent with a conclusion that the Taxpayer had left Virginia, either permanently or indefinitely. The house could have been occupied by Taxpayer at any time, and it was when they returned regularly for vacations in Virginia.
She further explains that the car, which was registered in Virginia in both 2013 and 2014, was garaged at that residence for use while she was staying there. The Taxpayer also asserts that her accountants mistakenly filed her 2013 State A and federal income tax returns using the Virginia address. In addition, the Taxpayer emphasizes that she testified under oath in a court proceeding that she was a State A resident.
Although the Department has considered statements or findings in court regarding residency to be strong evidence of intent, previous cases have involved statements or findings as to domicile specifically. See P.D. 15-125 (6/24/2015) and P.D. 15-245 (12/23/2015). While the Taxpayer stated she was a State A resident, determinations of domicile require an analysis of all facts and circumstances beyond where an individual physically resides.
The Department acknowledges that a change of domicile occurs as part of a process in which no single factor is dispositive. Although the Taxpayer likely established domicile in State A by having personal presence there with at least the intent to remain indefinitely, I find that the Taxpayer has not met her burden of proof as to abandoning her Virginia domicile. In addition to the other connections she retained with Virginia, using her Virginia voting registration to vote a full ballot in every election in her Virginia voting precinct since at least 2008 is very strong evidence of intent to retain her Virginia domicile. See Cooper's Adm'r v. Commonwealth, 121 Va. 338, 349, 93 S.E. 680, 683 (1917). In addition, as the Department has observed, individuals must be domiciliary residents of Virginia in order to be eligible to vote under the Constitution of Virginia. See P.D. 17-97 (6/12/2017). Therefore, the Taxpayer remained taxable as a domiciliary resident of Virginia for the 2013 and 2014 taxable years.
Penalty and Interest Waiver
The Taxpayer requests that the Department waive any assessed penalties and interest in the event it determines the Taxpayer was taxable as a Virginia resident. Virginia Code § 58.1-105 grants the Department the authority to waive penalty in cases where reasonable cause is demonstrated.
The Taxpayer argues that the Department should waive any assessed penalties because she relied on her accountants as to the proper filing status. In a situation where a taxpayer relies on his accountant, lawyer, or tax preparer, and the accountant, lawyer, or tax preparer provides inaccurate or erroneous advice that results in a penalty, the taxpayer has recourse against the accountant, lawyer, or tax preparer for the error. The Department will not consider such circumstances as reasonable cause to waive a penalty. See P.D. 08-69 (5/22/2008).
In addition, the application of interest to tax underpayments is mandatory under Virginia Code § 58.1-1812, and it cannot be waived unless the associated tax is adjusted. Interest is not assessed as a penalty, but represents a fee for the use of money that was properly due the Commonwealth. As such, the Department finds no basis for abating any portion of the assessed interest.
CONCLUSION
The Department finds that the Taxpayer remained taxable as a domiciliary resident of Virginia for the 2013 and 2014 taxable years. The Department also does not find reasonable cause to abate the assessed penalties. In addition, interest is assessed by law and can only be waived to the extent the associated tax is adjusted.
The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer, however, may have information that better represents her Virginia income tax liability for the taxable years at issue. Therefore, she should file 2013 and 2014 Virginia income tax returns and claim credit for income tax paid to State A. The 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: *****. The returns will be reviewed and processed, and the assessments will be adjusted as warranted. To the extent the 2013 assessment is adjusted, a refund will be issued. If the returns are not received within the allotted time, the assessments will be adjusted based on the best 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/1436.M