Credit: Out-of-state
March 20, 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, 2019.
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 2019 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 Taxpayer’s response, the Department determined that the Taxpayer was a domiciliary resident of Virginia and issued an assessment. The Taxpayer paid the assessment and filed and application for correction contending, he 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 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 and his spouse where domiciliary and actual residents of Virginia prior to 2016. They lived and worked in Virginia, owned a personal residence in Virginia, held Virginia driver’s licenses and vehicle registrations and were also registered to vote in Virginia.
In May 2016, the Taxpayer obtained a position with a new employer in State A. He purchased a personal residence in State A in August 2016. The Taxpayer lived and worked in State A until 2019, when he obtained employment and began living in ***** (State B). The Taxpayer purchased a residence in State B in November 2019. Consistent with a mid-year move, the Taxpayer filed part-year income tax returns in both State A and State B. To date, the Taxpayer has continued to live and work in State B.
The Taxpayer also retained significant connections with Virginia. His spouse continued to reside in their Virginia residence. Their sons remained in Virginia to attend college. The Taxpayer and his spouse also owned a residence near the sons’ college, to stay in when they visited. The Taxpayer also owned vehicles with his spouse that were registered in Virginia. In addition, the Taxpayer maintained a Virginia driver’s license and was registered to vote in Virginia.
According to the Taxpayer, two of the vehicles were used exclusively by the couple’s sons. Further, the sons were receiving in-state tuition rates based on their mother’s status as a Virginia resident.
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 that individual 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, registering to vote in Virginia and voting absentee in Virginia elections is also strong evidence of an intent to remain domiciled in Virginia. See Cooper’s Adm’r v. Commonwealth, 121 Va. 338, 349 (1917). The Department has consistently found that 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) and P.D. 18-84 (5/9/2018). To date, no evidence has been provided to show the Taxpayer cancelled his Virginia voting domicile.
The Taxpayer explains that he kept his vehicle registrations in Virginia since his State A employer provided him with a vehicle and his family used the vehicles located in Virginia. He indicates that he did not know that he could be considered to be a Virginia resident by possessing a Virginia driver’s license, and that once he found out, he surrendered his Virginia license and obtained a State B license in 2023.
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 he abandoned the old domicile and had no intent to return to it; and 2) that he 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 elsewhere, 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 2019 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.
CONCLUSION
After carefully reviewing all of the evidence provided, I find that that the Taxpayer has failed to prove that he satisfied both elements of the legal standard required to change his domicile. In particular, the Taxpayer’s ongoing connections with Virginia raise substantial doubts as to his intent to abandon his Virginia domicile. Accordingly, the Taxpayer remained subject to Virginia income tax as a domiciliary resident of Virginia. The Taxpayer, however, will be permitted to claim a credit for income tax paid to State A and to State B to the extent allowable under Virginia Code § 58.1-332.
The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer may have information that better represents his Virginia income tax liability. Therefore, the Taxpayer should file a 2019 Virginia resident income tax return to reflect his Virginia income tax liability more accurately. The return should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, P.O. Box *****, *********, Virginia 23261-****, 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 available information.
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 website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at (***) *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia