June 1, 2022
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessments issued to ***** (the “Taxpayer”) for the taxable years ended December 31, 2016, and 2017. I apologize for the delay in responding.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer and her husband may have been required to file a Virginia income tax return for the 2016 and 2017 taxable years. A review of the Department’s records showed that neither the Taxpayer nor her husband had filed a return. The Department requested additional information in order to determine if their income was taxable in Virginia. When a response was not received, the Department issued assessments. The Taxpayer subsequently provided information disputing the taxability of their incomes in Virginia. Based on the information received, the Department adjusted the assessments to remove the husband’s income. The Taxpayer appeals, contending she was a domiciliary resident of ***** (State A) who lived in ***** (“Country A”) during 2016 and 2017 while her husband was on military orders and they were exempt from Virginia income taxation pursuant to the Servicemembers Civil Relief Act (the “Act”).
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 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.
The Act, codified at 50 U.S.C. § 3901 et. seq., provides that military personnel do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different state or country. The Act was amended, effective for the 2009 taxable year and thereafter, to address the residency of military spouses. Specifically, 50 U.S.C. § 4001(a)(2) was enacted to provide that a spouse can neither lose nor acquire domicile or residence in a state when the spouse is present in the state “solely to be with the service member in compliance with the service member’s military orders if the residence or domicile, as the case may be, is the same for the service member and the spouse.”
Similarly, in Virginia Tax Bulletin (VTB) 10-1 (1/29/2010), the Department explained that the domicile of a military spouse must be the same as the service member in order to be exempt from Virginia’s income tax. The determination of a military spouse’s domicile requires analysis of the facts and circumstances. The elements that may be examined include:
1. Whether the person claiming the exemption is married to a service member who is present in Virginia pursuant to military orders.
2. The service member’s domicile.
3. The spouse’s domicile and the circumstances in which it was established.
4. The extent to which the spouse has maintained contacts with the domicile.
5. Whether the spouse has taken any actions in Virginia that are inconsistent with maintaining a domicile elsewhere.
In determining domicile, the Department will generally consider 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 intent must be determined with reference to all the facts and circumstances of the particular case. A simple declaration is not sufficient to establish domicile. See United States v. Minnesota, 97 F.Supp. 2d 973 (2000).
The Department has typically found that when a spouse moves to follow military personnel to a new duty station, they will generally abandon their former real property and move the family. See Public Document (P.D.) 10-34 (4/8/2010). The spouse will establish a new permanent place of abode near the new duty station, enroll children in school, and seek employment of an indeterminate duration. The spouse will generally comply with jurisdictional authorities with regard to driving permits, vehicle registrations, and educational requirements. The spouse will also change social, charitable and church associations. Moreover, the military service member and the spouse move with no assurance that they may move back to a former duty station.
In P.D. 15-186 (9/28/2015), the Department suggested, given the language of the Act, that certain activities conducted by a military spouse, such as the spouse’s profession or employment, income sources, permanent place of abode, enrolling children in local schools, and situs of real and tangible property, may no longer be considered to be activities associated with establishing domicile in a state. While such activities may normally be considered to be incidental to a spouse’s presence in the state as a result of the service member’s military orders, they will be considered when there appears to be an affirmative choice to make their current state of residence their domicile. See P.D. 17-126 (6/29/2017).
In addition, the Department has repeatedly stated that a change of domicile occurs as part of a process in which no single factor is dispositive. See, e.g., P.D. 10-180 (8/16/2010), P.D. 11-90 (6/2/2011), and P.D. 13-115 (6/26/2013). Therefore, more weight may be assigned to such factors to the extent any continued after the service person retired or was reassigned elsewhere from a Virginia duty station. The Department would consider the fact that any such connections continued to be evidence that a taxpayer initially intended to establish a Virginia domicile.
In general, the Department will not seek to tax the spouse of a military service member so long as the spouse maintains sufficient connections with the service member’s domiciliary state to indicate intent to maintain domicile there. Such connections would include obtaining and retaining a driver’s license, registering to vote and voting in local elections, registering an automobile, and exercising other benefits or obligations of a particular state. As long as the spouse of a military service member maintains such connections, he or she would be considered to be a resident of the other state even though they work, live, and establish a place of abode in Virginia.
The husband was a military service member whose home of record was ***** (State B). The Taxpayer and her spouse purchased a residence in State A in 1994 which they maintained until it was sold in 2020. She kept a State A driver’s license until December 2010 and her State A voter’s registration until 2012.
The husband was stationed in Virginia beginning in 2010, and the Taxpayer and her husband purchased a residence in the Commonwealth that same year. They also registered vehicles in Virginia and obtained Virginia driver’s licenses in 2010. In addition, the Taxpayer registered to vote in Virginia in 2012.
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).
With regard to eligibility to vote, Article II, Section 1 of the Constitution of Virginia states in relevant part as follows:
In elections by the people, the qualifications of voters shall be as follows: Each voter shall be a citizen of the United States, shall be eighteen years of age, shall fulfill the residency requirements set forth in this section, and shall be registered to vote pursuant to this article.
The residence requirements shall be that each voter shall be a resident of the Commonwealth and of the precinct where he votes. Residence, for all purposes of qualification to vote, requires both domicile and place of abode.
The domicile and place of abode requirement found in the Constitution of Virginia is also reflected in the definition of “residence” or “resident” used in Virginia election statutes. See Virginia Code § 24.2-101. In addition, should a military spouse choose to register to vote in Virginia, Virginia law provides a presumption that such spouse established domicile if he has a physical presence and place of abode in Virginia. See Virginia Code § 24.2-417.1. The presumption can be overcome if the spouse expressly states otherwise. See id. This provision, however, provides no exception to the domicile requirement for military spouses. The fact remains that the spouse must be both domiciled in and have a place of abode in Virginia to be eligible to vote. Consistent with the precedent established by Cooper’s Adm’r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917), the Department will consider the fact that a military service member or spouse obtained a Virginia voter’s registration and voted in elections in Virginia to be very strong evidence that that individual considered Virginia to be his domicile during the time he held and used such registrations. In addition, consistent with the principles of domicile law, Virginia Code § 24.2-417.1 provides that once residence is changed, the military spouse may not revert to any previous residence without re-establishing new physical presence and intent to remain or return.
In May 2016, the Taxpayer began to reside in Country A after a permanent change of duty station for her husband. One child went with the Taxpayer, while another child remained in Virginia to attend a public university, receiving in-state tuition rates. The Taxpayer surrendered her Virginia driver’s license and cancelled the vehicle registrations in May 2016. The Taxpayer, however, retained her Virginia residence which remained unoccupied through the 2016 taxable year, but was rented beginning in 2017. The Taxpayer continued to work remotely for her Virginia based employer throughout the time her husband was stationed in Country A. The Taxpayers returned to Virginia in 2018. They leased a new residence at that time because their other Virginia residence was still occupied. They later purchased another residence in Virginia and also registered their vehicles and obtained driver’s licenses in Virginia again.
The Taxpayer indicates that her son was able to attend a public Virginia university using in-state tuition pursuant to her husband’s status as a military servicemember. Previously, the Department has found that representations of residency made to Virginia universities to obtain in-state tuition rates constitute strong evidence of domiciliary intent. See, e.g., P.D. 02-149 (12/9/2002). Dependents of military servicemembers, however, are deemed domiciled in Virginia and are eligible for in-state tuition rates if the servicemember is assigned to a duty station in Virginia, the District of Columbia or a contiguous state and also resides in Virginia. Further, such dependents can continue to receive in-state rates even if the servicemember later is assigned to a duty station outside Virginia as long as the enrollment is continuous. See Virginia Code § 23.1-505.
Because such dependents are considered Virginia residents for purposes of in-state tuition rates solely because the servicemember parent resides in Virginia pursuant to military orders, the usual domicile implications as to the receipt of in-state tuition rates may not apply in such cases. In this case, it appears the Taxpayer had a child who was receiving in-state tuition rates at a public Virginia university. It appears, however, that the child was able to do so because the father had been assigned to a Virginia duty station. In addition, the fact that the father was transferred to a duty station in Country A would have had no impact on the applicable tuition rates as long as the child’s enrollment at the institution was continuous.
As stated above, a change of domicile requires both the abandonment of the previous domicile with no intention to return, plus the establishment of the new domicile with physical presence and the intention to remain permanently or indefinitely. The Taxpayer admits that she did not share the same domicile as her husband and clearly took sufficient steps to establish a Virginia domicile following her relocation from State A in 2010. Although the Taxpayer and her husband owned property in State A, this property was eventually sold in 2020 and it appears the Taxpayer retained few, if any, other connections to State A during the period at issue. The evidence indicates, therefore, that the Taxpayer intended to abandon any prior State A domicile. To reestablish such domicile would require the Taxpayer to be physically present there again with the intent to remain permanently or indefinitely.
The facts also indicate that the Taxpayer did not abandon her Virginia domicile in 2016 and 2017 when her husband was stationed in Country A. Even if the Taxpayer could show that she intended to establish domicile in Country A, which would be highly unusual for the spouse of a military service member serving overseas, her continued connections with Virginia and subsequent return to Virginia in 2018 indicate that she did not intend to abandon her Virginia domicile. In the Department’s opinion, the Taxpayer has not satisfied her burden of proving that a change of domicile to Country A occurred. Therefore, she remained a domiciliary resident of Virginia during the 2016 and 2017 taxable years. Accordingly, the assessments are upheld.
The assessments at issue were 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 her Virginia income tax liability for the taxable years at issue. Therefore, the Taxpayer is requested to file 2016 and 2017 Virginia resident income tax returns. The returns 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: *****. The returns will be reviewed and processed, and the assessments will be adjusted as warranted. If the returns are not received within the allotted time, the assessments will be presumed to be correct and collection action may resume.
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,
Craig M. Burns
Tax Commissioner
AR/3805.B