June 5, 2024
Re: § 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 his responses and the information otherwise available, the Department determined that the Taxpayer was taxable as a domiciliary resident of Virginia and issued an assessment. The Taxpayer filed an application for correction contending he was a resident of Maryland.
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 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 and his family moved to Maryland in June 2017 when he entered a residency program at a Maryland hospital. He began leasing a personal residence there, Maryland income tax was withheld from his wages, and he filed a Maryland resident return for the taxable year at issue. The Taxpayer’s child also began attending a school in Maryland.
The Taxpayer retained significant connections to Virginia. The Taxpayer and his spouse have owned a personal residence in Virginia since 2008 where they lived both before and after their period of Maryland residence. The Taxpayer explains that this residence was leased to a third party while he was living in Maryland. The Taxpayer returned to Virginia in June 2020 because his tenant was no longer able to pay the rent and he could not afford to maintain residences in both states. The Taxpayer has also held a Virginia driver’s license since 2005, and he renewed it in 2018 during the period he claims to have only been a Maryland resident. He also owned a vehicle that was registered in Virginia during the taxable year at issue.
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 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. In this case, the Taxpayer explains that he did not have the opportunity to obtain a Maryland driver’s license or vehicle registration. He further cites the COVID-19 pandemic and the fact that he moved back to Virginia in 2020 as reasons for not obtaining these Maryland connections. The Taxpayer, however, had lived in Maryland for more than two years before the pandemic made it more difficult to obtain items such as driver’s licenses and vehicle registrations.
The Taxpayer seems to believe that he should not be subject to income tax in Virginia simply because he lived and worked in Maryland during the taxable year at issue. While this would have established him as a so-called “actual resident” of Maryland for income tax purposes, an individual can remain a domiciliary resident of one state while actually living and working in another. The Taxpayer’s filing status with Maryland has no bearing on his residency status with Virginia, which is a separate determination made under Virginia law.
As stated above, a change of domicile requires both establishing a new domicile and abandoning the old. Both of these requirements must also be satisfied concurrently. In this case, the Taxpayer’s failure to obtain connections that might indicate an intent to establish permanent residency in Maryland, such as a driver’s license or voter’s registration, coupled with the connections he retained with Virginia, raises substantial doubt as to whether he intended to change his domicile.
Reciprocity
Virginia Code § 58.1-342 B grants the Department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income tax when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. In addition, employers are not required to withhold Virginia income tax from residents of these states. Virginia currently has this type of agreement with Maryland, West Virginia, and Pennsylvania.
The reciprocal income tax agreement between Virginia and Maryland was most recently updated in 2006. See Virginia Tax Bulletin (VTB) 06-8 (12/27/2006). The updated agreement makes clear that reciprocity does not apply to a taxpayer who is a domiciliary resident of one state, but who maintains a place of abode and spends an aggregate of more than 183 days of the taxable year in the other state.
In this case, it appears that the Taxpayer was an actual resident of Maryland and a domiciliary resident of Virginia. As a so-called “dual resident,” the reciprocal agreement did not apply.
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.
The Taxpayer would be eligible for credit for income tax paid to Maryland because the reciprocal agreement did not apply. The Taxpayer should be aware, however, that the local tax paid on his Maryland resident income tax return is not eligible for the credit. See P.D. 21-121 (9/7/2021).
CONCLUSION
After reviewing all of the available evidence, it is determined that the Taxpayer failed to carry his burden to prove he intended to change his domicile. Accordingly, he remained taxable as a domiciliary resident of Virginia for the 2019 taxable year.
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, which may include a credit for tax paid to Maryland. Therefore, the Taxpayer should file a 2019 Virginia resident return. The return should be submitted within 60 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 23261-7203, Attention: *****. Upon receipt, the return will be reviewed and the assessment may be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be adjusted based on the best information available. The Department’s records indicate that the assessment has been paid in full. As such, a refund would be issued to the extent the assessment is adjusted.
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,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4788.X