June 22, 2016
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your correspondence in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayer”) for the taxable year ended December 31, 2011.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia individual income tax return for the 2011 taxable year. A review of the Department's records showed the Taxpayer had not filed a return. The Department requested additional information from the Taxpayer in order to determine if her income was subject to Virginia income tax. When no response was received, the Department issued an assessment for the 2011 taxable year. The Taxpayer filed an appeal, stating she paid income tax to the state of New York.
DETERMINATION
Residency
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 actually reside elsewhere. For a person to change domiciliary residency to another state, 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.
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 individual'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 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 of the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency or domicile.
The Department determines a taxpayer's 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.
The Taxpayer was a domiciliary resident of New York until December 2010. At that time, she began taking steps to abandon her New York domicile by moving out of her permanent place of abode and surrendering her New York driver's license.
The Taxpayer also took a number of actions consistent with establishing domicile in Virginia. She moved into a Virginia monastery, registered to vote in Virginia and obtained a Virginia driver's license. She also notified the administrator of her pension to send her retirement income to Virginia.
Under Va. Code § 24.2-101, an individual qualified to vote in Virginia must be a resident of the precinct in which she offers to vote. This statute requires a resident to have both legal domicile and a place of abode in Virginia. For Virginia voting purposes, domicile is determined by the intention of the individual, supported by an individual's factual circumstances. See State Board of Elections (SBE) Policy 2009-005. By registering to vote in Virginia, the Taxpayer asserted to the SBE that she was a domiciliary resident of Virginia.
The Taxpayer surrendered her New York driver's license and received a Virginia driver's license in September 2011. 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 Taxpayer asserts that her move into Virginia was temporary. Based on her actions with New York, however, it appears she never intended to return there and her move to Virginia was for an indefinite period of time. Further, even if she remained a domiciliary resident of New York, she spent more than 183 days living in Virginia and would be considered to be a Virginia resident for income tax purposes.
Taxability of Income
The Taxpayer argues that she reported all of her income to New York and to pay Virginia income tax would be double taxation. It is well established that a state may tax all the income of its residents, even income earned outside the taxing jurisdiction. In People of State of New York ex rel Cohn v. Graves, 300 U.S. 308 (1937), the United States Supreme Court explained “[t]hat the receipt of income by a resident of the territory of a taxing sovereignty is a taxable event is universally recognized.” Accordingly, Virginia is well within its authority to impose its income tax on all of the income of a resident of the Commonwealth of Virginia.
Retirement Income
Information received from the IRS shows that the IRS adjusted the Taxpayer's FAGI to reflect additional retirement income paid during the 2011 taxable year. The Taxpayer believes the income was subject to tax in New York A because she resided there when the income was earned. Public Law (P.L.) 104-95, as codified at Title 4 U.S.C. § 114, however, prohibits a state from imposing an income tax on any retirement income received by an individual who is not a resident or domiciliary of that state. In light of the facts showing the Taxpayer abandoned her domicile, the Department finds it unlikely she would be considered a resident of New York for the 2011 taxable year.
Further, to the extent included in FAGI, retirement income received by an actual or domiciliary resident of Virginia would be included in the computation of Virginia taxable income. In Public Document (P.D.) 02-118 (9/3/2002), the Department determined that under P.L. 104-95, retirement income received by an actual resident of Virginia was subject to Virginia's income tax even if the retirement income was derived from employment in the other state and the taxpayer remained a domiciliary resident of the other state.
In addition, P.L. 104-95 only addresses distributions from qualified pension and savings plans. However, because nonqualified pension and retirement savings plans do not enjoy the same protection under P.L. 104-95, some states continue to impose income tax on the retirement income earned through employment within such state even if the individual moves to another state. New York is one state that imposes its income tax in such circumstances. Virginia does not impose income tax on distributions from nonqualified pension and savings plans for individuals who worked in Virginia, but who are no longer domiciliary or actual residents of the state. See P.D. 92-58 (4/29/1992).
The Taxpayer received retirement income from a plan for retired employees of a municipality within New York. While no evidence has been provided concerning the municipality's plan, it was likely a qualified plan protected under P.L. 104-95.
Credit for Tax Paid to Another State
If the Taxpayer can show she was actually subject to tax in New York, she may be eligible for a credit for tax paid to another state. Virginia Code § 58.1-332 A allows Virginia residents a credit against their income tax liability when they pay income tax to another state on earned or business income, or on any gain from the sale of a capital asset. The intent of the credit is to grant Virginia residents relief in situations in which they are taxed by both Virginia and another state on these types of income during the same taxable year.
In P.D.86-93 (5/12/1986), the Department ruled distributions from qualified pension and profit sharing plans constitute earned income eligible for the credit only to the extent that the distribution represents compensation for services actually rendered. The credit is limited, however, 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) and P.D. 12-105 (6/19/2012).
For the purposes of calculating the Virginia credit, P.D. 94-91 (3/29/1994) provides a calculation to determine the amount of income on which the New York nonresident tax is based. The allocation percentage calculated on the New York nonresident return, which is used to convert the resident tax to the nonresident tax, must be applied to the New York taxable income calculated as a resident in order to determine the New York nonresident taxable income. The result is used in the numerator of the fraction to compute the limitation imposed by Va. Code § 58.1-332 A.
CONCLUSION
As a resident of Virginia, the Taxpayer was required to file a 2011 Virginia individual income tax return. Because the Taxpayer failed to file, the Department was correct in imposing tax on the Taxpayer's FAGI.
In the unlikely event that the Taxpayer was a domiciliary resident of New York or her retirement income was legally taxable by New York, she may be entitled to an out-of-state credit for income tax paid to Virginia. The 2011 assessment was made based on the best information available to the Department pursuant to Va. Code § 58.1-111. The Taxpayer may have information that better represents her Virginia income tax liability for the year at issue. Therefore, the Taxpayer should file a 2011 Virginia resident income tax return.
The requested return should be submitted within 30 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 23161-7203, Attention: *****. Upon receipt, the documentation 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 considered to be correct as issued and collection actions may result.
Based on the information provided, the Taxpayer appears to have been a resident of Virginia for subsequent taxable years. As such, she should evaluate her residential status for these years and file Virginia income tax returns as necessary. In addition, she may be able to file amended New York returns and receive refunds for the taxable years within the statute of limitations.
The Code of Virginia sections and public documents cited are available on-line 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/1-6219670421.D