June 30, 2015
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the Virginia individual income tax assessment issued to ***** (the "Taxpayer") for the taxable year ended December 31, 2011.
FACTS
In February 2010, the Taxpayer accepted employment that required he work in ***** (Country A) and ***** (Country B). Accommodations were provided to the Taxpayer by the employer in a secured facility while in Country A and in a hotel while in Country B. The Taxpayer was employed under a one year term with possible extensions. The Taxpayer worked only in Country A during the 2011 taxable year.
During the taxable year at issue, the Taxpayer possessed a Virginia driver's license and owned an automobile registered to his mother's Virginia address. In March 2011, he purchased a residence in Virginia. The Taxpayer's 2011 federal tax documents were sent to his mother's home. He also used her address on his federal return and the employment contract.
Under audit, the Department concluded the Taxpayer was a domiciliary resident of Virginia. As a result, the Department issued an assessment for additional tax, penalty and interest. The Taxpayer appeals the assessment, contending he established residence in Country A and was not an actual or domiciliary resident of Virginia. The Taxpayer also argues that a late filing penalty should be waived because he relied on his accountant's advice regarding domicile.
DETERMINATION
Domicile
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. 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.
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 individuals' expressed intent, conduct, and all attendant circumstances including, but not limited to, financial independence, profession or employment, income sources, residence of spouse, marital status, sites 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 the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.
The Department determines a taxpayers intent through the information provided. A taxpayer has the burden of proving that he or she has abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Tax Commissioner must conclude that he or she intended to remain indefinitely in Virginia.
In considering employment as it relates to an individual's domicile, the Department has analyzed whether a specific employment contract was established permanently or for an indefinite period of time. See Public Document (P.D.) 99-158 (6/21/1999). In the case of individuals who engage in employment under set term contracts, the Department has ruled that such individuals generally lack the intent to abandon their Virginia domicile based on the temporary nature of the activity. See P.D. 86-219 (11/3/1986), P.D. 94-353 (11/23/1994), P.D. 96-207 (8/26/1996), P.D. 02-33 (3/13/2002), P.D. 05-8 (2/1/2005), and P.D. 10-134 (7/12/2010). In P.D. 01-161 (10/23/2001), the Department held, however, that a taxpayer that takes sufficient actions to abandon his Virginia domicile can be considered to have established a new domicile even though he was temporarily employed for a definite period of time.
In the Taxpayer's case, his employment was for a one-year period with an extension option. The Taxpayer has exercised the option and continues to remain in Country A. However, the requirement of renewing employment in one-year intervals indicates that the employment was temporary in nature.
The Taxpayer took a number of actions indicating an intent to retain his Virginia domicile. He purchased a residence in Virginia and registered a Virginia motor vehicle in Virginia. In addition, he continued to retain his Virginia driver's license, which was renewed in December 2009. Both the vehicle registration and driver's license used his mother's Virginia address.
The Taxpayer indicates that he used his mother's Virginia address as his address of record on all legal documents because she holds his power of attorney. He asserts that he kept a vehicle in Virginia and a Virginia driver's license as a convenience for when he visits Virginia.
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 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 Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. Although the Taxpayer took some steps to change his domicile to Country A, he neither abandoned his Virginia domicile not established a domiciliary residence in Country A.
Penalty
Pursuant to Va. Code § 58.1-347, an individual who fails to file a return by the due date or extended due date of such return is subject to a penalty equal to 6% of the tax liability per month or fraction thereof during which such failure to file continues, not to exceed 30%, in the aggregate. The due date for the Taxpayer's 2011 individual income tax return was May 1, 2012. Because the Taxpayer never filed his 2011 return, the aggregate 30% penalty was properly applied.
The Taxpayer requests that the late filing penalty be abated because he made a good faith effort to change his domicile from Virginia to Country A following a consultation with his accounting firm. Virginia Code § 58.1-105 grants the Tax Commissioner authority to waive penalty for reasonable cause.
In a situation where a taxpayer relies on his accountant, lawyer, or tax preparer, and the accountant, lawyer, or tax preparer provides inaccurate or erroneous advice that results in a penalty, the taxpayer has recourse against the accountant, lawyer, or tax preparer for the error. The Department will not consider such circumstances as reasonable cause to waive a penalty. See P.D. 08-69 (5/22/2008).
CONCLUSION
Based on the evidence in this case, the Taxpayer was a Virginia domiciliary resident during the 2011 taxable year. In addition, I do not find reasonable cause for the Department to waive the penalty. Accordingly, the assessment for the 2011 taxable year is upheld. An updated bill, with interest accrued to date, will be mailed to the Taxpayer shortly. No further interest will accrue provided the outstanding balance is paid within 30 days from the date indicated on the revised bill.
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,
Craig M. Burns
Tax Commissioner
AR/1-5960429557.B