March 5, 2025
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 information provided, the Department concluded that he was taxable as a domiciliary resident of Virginia. The Taxpayer appealed, contending he was a resident of Puerto Rico.
DETERMINATION
Taxation of United States Citizens Residing in Puerto Rico
An individual is considered a bona fide resident of Puerto Rico if they meet a presence test (including residing in Puerto Rico for more than 183 days during the tax year), they did not have a tax home outside Puerto Rico for any part of the tax year, and they did not have a closer connection to the United States (or another foreign country) than to Puerto Rico during any part of the tax year. Special rules apply to individuals who move to or from Puerto Rico during the tax year. See Internal Revenue Code (IRC) § 937.
United States citizens who are bona fide residents of Puerto Rico are required to file federal income tax returns if, among other things, they have income from sources outside Puerto Rico. Income from sources within Puerto Rico would generally be exempt from the federal taxable income if the individuals were bona fide residents of Puerto Rico for the entire taxable year. See IRC § 933. In addition, taxpayers who are bona fide residents of Puerto Rico receive a credit on their Puerto Rico income tax return for taxes paid to the United States. See P.R. Laws tit. 13 § 30201.
In this case, the Taxpayer filed a 2019 Puerto Rico income tax return on the basis that he was a resident of Puerto Rico. He did not file a federal income tax return. This action, however, is not determinative as to whether or not the Taxpayer remained a domiciliary resident of a state in the United States. The fact that a Puerto Rico taxpayer can receive a credit for United States federal income tax paid means that, at least with regard to income tax, Puerto Rico is treated more like another country than a state. In addition, the tests used to determine Puerto Rico tax residency, namely the 183 day test, the tax home test, and the closer connection test, while they may involve factors that overlap with domicile, are not substitutes for the two-pronged standard that must be met in order for there to be a change of domicile. See Public Document (P.D.) 13-89 (6/10/2013).
Virginia 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. 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 continues to be subject to Virginia taxation even if they work in another state or country. 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 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. See Cooper's Adm’r v. Commonwealth, 121 Va. 338, 347 (1917). The burden of proof that an individual has abandoned or failed to establish domicile in Virginia rests with the individual. See Title 23 of the Virginia Administrative Code (VAC) 10-110-30 B 3.
The determination of whether a change of domicile has occurred is highly dependent on the facts and circumstances of the individual case, and no single factor is dispositive. Factors to be considered include, but are not limited to, the following:
sites of real and tangible property, location of savings and checking accounts, motor vehicle registration and licensing, motor vehicle operator’s license, voter registration, membership in clubs and civic groups, place of business, profession or employment, charitable contributions, location of schools attended by children, length of time of residence, place of birth and marriage, residence of family, reason for abandoning or acquiring domicile, and, in the case of a minor or married person, domicile of parents, husband, or wife and/or children.
The Taxpayer was an actual and domiciliary resident of Virginia before he moved to Puerto Rico in December 2018. He explains that he intended to live there permanently with his partner who was a native of Puerto Rico and owned a business there. The Taxpayer began working in Puerto Rico in January 2019 and leased two residences there from January 2019 through March 2020. He filed a 2019 Puerto Rico resident return using his Puerto Rico address. His employment in Puerto Rico was for an indefinite duration, and he explains that he only returned to Virginia because of workplace disruptions brought about by the start of the COVID-19 pandemic in March 2020.
The Taxpayer also retained connections to Virginia. He retained a Virginia driver’s license and had a vehicle registered at a Virginia residence owned by a family member. The Taxpayer did not renew the Virginia license while he was in Puerto Rico, but he did have a duplicate copy issued during that time period.
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).
The Taxpayer explains that he did not obtain a Puerto Rico driver’s license because he did not drive in Puerto Rico and that he retained his Virginia license to use while he was in Virginia visiting family and friends. He states that his vehicle remained in Virginia and was used by family members.
CONCLUSION
The Department acknowledges that a determination of a change in domicile is evidenced by a process in which no single factor is dispositive. After carefully considering the information provided, the Department finds that the totality of the factors considered shows that the Taxpayer successfully changed his domicile from Virginia to Puerto Rico prior to the 2019 taxable year. Accordingly, the assessment issued to the Taxpayer for the taxable year ended December 31, 2019, will be abated.
The Code of Virginia sections and regulation 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
AR/4958.X