December 13, 2024
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, 2020.
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 2020 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. Based on the information received, the Department determined that the Taxpayer was subject to Virginia income tax as a domiciliary resident of Virginia. Accordingly, the Department issued an assessment but reduced the tax due by the amount of income tax the Taxpayer had paid to ***** (State A). The Taxpayer appeals, contending he was a resident of State A.
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 that person and the place to which that person intends to return even though they may be residing elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon their 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 their 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 their 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 person’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. The taxpayer has the burden of proving that their Virginia domicile has been abandoned. If the information is inadequate to meet this burden, the Department must conclude that the taxpayer intended to remain indefinitely in Virginia.
The Taxpayer explains that he lived and worked in Virginia from January 2009 until January 2015 when he moved to State A after being transferred to work at his employer’s headquarters. He states that he has lived and worked in State A ever since. During this time, he leased three residences in State A and has filed State A resident income tax returns. The Taxpayer also registered to vote and voted in State A in 2020. In addition, he obtained a State A driver’s license in November 2023.
The Taxpayer also retained significant connections to Virginia. He maintained a Virginia driver’s license which was renewed in August 2016 and reissued in February 2022. He owned two vehicles which were registered in Virginia. In addition, the Taxpayer continued to own a Virginia residence to which he returned for four days every two weeks.
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 they retain 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 Department expects that when individuals are seeking a permanent change of domicile, they will normally register vehicles, obtain a new driver’s license, register to vote, and perform other official acts indicating their intent to change domicile. Retaining such connections with Virginia raises considerable doubt as to the individual’s intent to abandon their Virginia domicile. If a permanent change of residence were intended, there would be no need to retain such connections with the former state.
The Taxpayer explains that he maintained his Virginia driver’s license because he had paid for a long-term license. The Taxpayer, however, paid for that long-term license after the date he states he established residency in State A. In addition, although the Taxpayer relinquished the Virginia license and obtained a State A license in November 2023, he states that he took this action because of the residency audit. The Department has found that actions taken as a result of an audit are less persuasive as evidence of intent. See P.D. 13-161 (8/13/2013) and P.D. 17-97 (6/12/2017). The Taxpayer also explains that he retained the Virginia residence as a vacation home. The regularity with which he returned to the residence, however, suggests a level of use beyond that of the typical vacation home.
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.
As stated above, a change of domicile requires that a taxpayer prove two elements concurrently: 1) that they abandoned the old domicile and had no intent to return to it; and 2) that they established a new domicile, which must have been formed by physical presence coupled with the intent to remain permanently or indefinitely. In this case, even if the Taxpayer intended to establish a new domicile in State A, the Taxpayer’s ongoing connections with Virginia raise substantial doubts as to his intent to abandon his Virginia domicile. Accordingly, the Taxpayer has not met the burden of proving that a domicile change had occurred as of the 2020 taxable year.
Credit for Taxes Paid to Another State
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. 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.
In this case, the Department adjusted the Taxpayer’s assessment to allow a credit for tax paid to State A before he filed this application for correction. The Taxpayer should be aware, however, that local tax paid in State A is not eligible for the credit. See P.D. 21-121 (9/7/2021).
CONCLUSION
After carefully reviewing all of the evidence provided, the Department finds that the Taxpayer has failed to prove that he abandoned his Virginia domicile as of the 2020 taxable year. In particular, the regularity with which he returned to his Virginia residence and the fact that he had his Virginia driver’s license renewed and reissued during the period when he claimed to be a State A resident are significant factors evidencing an intent to maintain a Virginia domicile. Therefore, the Taxpayer remained subject to income tax as a domiciliary resident of Virginia. The Taxpayer was, however, eligible to claim a credit for the income tax he paid to State A.
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 his Virginia income tax liability for the taxable year at issue. Therefore, he should file a 2020 Virginia resident income tax return and claim credit for income tax paid to State A to the extent permitted by Virginia Code § 58.1-332. The return should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, P.O. Box 27203, Richmond, Virginia 23261, Attention: *****. The return will be reviewed and processed, and the assessment will be adjusted as warranted. If the return is not received within the allotted time, the assessment will be considered to be correct.
The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at (***) ***** or *****@tax.virginia.gov.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia