August 27, 2019
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 to determine whether the Taxpayer’s income was subject to Virginia income tax. In response, the Taxpayer claimed that she was exempt from Virginia income tax under the Servicemembers Civil Relief Act (the “Act”) because she was the spouse of a military service member stationed in Virginia and they were both domiciliary residents of ***** (State A).
The Department requested additional information from the Taxpayer regarding her claim and additional documentation was submitted. As a result of its review, the Department concluded that the Taxpayer was taxable as a domiciliary resident of Virginia and an assessment was issued. The Taxpayer appealed, contending she was exempt from Virginia income tax under the Act.
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.
Residency of a Military Spouse
The Act, codified at 50 U.S.C. § 3901 et seq. (formerly 50 U.S.C. § 511(a)(2)) 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) (formerly 50 U.S.C § 571 (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:
1. Whether the person claiming exemption is married to a service member who is present in Virginia pursuant to military orders.
2. The service member’s domicile.
3. The spouse’s domicile and the circumstances in which it was established.
4. The extent to which the spouse has maintained contacts with the domicile.
5. Whether the spouse has taken any actions in Virginia that are inconsistent with maintaining 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 personal 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 educational 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 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 filing a State of Legal Residence Certificate (Department of Defense Form 2058), 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.
The Taxpayer established numerous connections with Virginia. She leased a personal residence in Virginia from December 2009 to January 2015, and her children attended Virginia public schools from 2009 through 2015. She registered to vote in Virginia in 2011 and participated in the 2012 and 2014 general elections. In addition, she obtained a Virginia driver’s license in March 2011. She also registered three vehicles in Virginia from 2010 through 2015.
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).
With regarding to eligibility to vote, Article II, Section 1 of the Constitution of Virginia states in relevant part as follows:
In elections by the people, the qualifications of voters shall be as follows: Each voter shall be a citizen of the United States, shall be eighteen years of age, shall fulfill the residency requirements set forth in this section, and shall be registered to vote pursuant to this article.
The residence requirements shall be that each voter shall be a resident of the Commonwealth and of the precinct in which he votes. Residence, for all purposes of qualification to vote, requires both domicile and a place of abode.
The domicile and place of abode requirement found in the Constitution of Virginia is also reflected in the definition of “residence” or “resident” used in Virginia election statutes. See Virginia Code § 24.2-101. In addition, should a military spouse choose to register to vote in Virginia, Virginia law provides a presumption that such spouse established domicile if they had a physical presence and a place of abode in Virginia. See Virginia Code § 24.2-417.1. The presumption can be overcome if the spouse expressly states otherwise. See id. This provision, however, provides no exception to the domicile requirement for military spouses. The fact remains that the spouse must be both domiciled in and have a place of abode in Virginia to be eligible to vote. Consistent with the precedent established by the Virginia Supreme Court in Coopers Adm’r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917), the Department will consider the fact that a military service member or spouse obtained a Virginia voter’s registration and voted in elections in Virginia to be very strong evidence that that individual considered Virginia to be her domicile during the time she held and used such registrations.
The Taxpayer maintained few connections with State A during the time she resided in Virginia. The Taxpayer had State A tax withheld from her pay and filed and paid income taxes to State A during the 2014 taxable year. She also states that she continued to have a State A bank account and stayed in touch with friends and family in State A.
The Taxpayer contends that the actions she took were done either for convenience or in an attempt to comply with jurisdictional laws. As stated above, the Department understands that a military spouse will generally comply with jurisdictional authorities with regard to requirements in the state where the new duty station is located. Many states, however, including Virginia, provide relief for military service members and their families from compliance with such jurisdictional requirements. While it is impractical for the Department to perform a comprehensive review of every possible avenue of relief that may have been available to a military spouse in each state in a given case, the Department has addressed relief available to military service members and their spouses under Virginia law.
For example, 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 will typically consider that action to be a strong indicator of intent to change domiciliary residency. The Department, however, may give the driver’s license factor less weight in such cases if the service member or spouse provides evidences 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 states she renewed her State A driver’s license once, which she claims is all she was allowed to do, prior to obtaining a ***** (State B) license while being stationed there. She says she then obtained a Virginia driver’s license because it was not practical for her to return to State A to obtain a new State A license.
In any domicile determination, regardless of whether it involves military personnel or civilians, the ultimate question to be answered is whether the taxpayer was present in a state with the intention to remain permanently or indefinitely and whether the taxpayer abandoned a prior domicile with no intention to return. The Taxpayer argues that performing actions taken for convenience to determine she established domicile in Virginia is punitive for military spouses. The Department empathizes with military service members and their spouses. The Department, however, is also charged with administering the tax laws fairly and equitably across a broad spectrum of citizens, including military service members and their spouses. Under the facts of the current case, had the Taxpayer not been married to a military service member, the Department unquestionably would have considered her to have established a Virginia domicile. The only difference the Department has to consider for a military spouse is the Act. As the federal court observed in Minnesota, the Act is not an absolute bar to state taxation for military service members and their spouses. See Minnesota at 984. The Act also does not prevent domicile changes from occurring for service members or their spouses, and it also does not prevent a state from considering the same domicile factors it uses for all taxpayers in making that determination. See Minnesota at 985. If a service member or a military spouse performs the same actions that would clearly result in a domicile change for a civilian, it seems only just and fair for the Department to reach the same conclusion for service members and their spouses.
After carefully considering all of the information and arguments presented, the Department finds that the Taxpayer was taxable as a domiciliary resident of Virginia for the 2014 taxable year. Accordingly, the assessment issued for the 2014 taxable year is correct. The Taxpayer will receive an updated bill, which will include accrued interest to date. The Taxpayer should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collections actions.
Recent Amendments to the Act
On December 31, 2018, Congress enacted the Veterans Benefits and Transition Act of 2018. This federal legislation amends the Act, allowing the spouse of a service member to elect the same residence as the service member for state tax purposes, even if the spouse has a different residency or domicile from that of the service member. This election can be made annually beginning with taxable year 2018 for any taxable year of the marriage, regardless of the date on which the marriage of the spouse and the service member occurred. This election does not affect taxes imposed or paid for 2017 or earlier. See Virginia Tax Bulletin (VTB) 19-2 (2/25/19).
The Code of Virginia sections, tax bulletin 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 Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1914.A