Rulings of the Tax Commissioner

June 9, 2022

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, 2017. I apologize for the delay in responding to your request.

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 2017 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 her income was taxable in Virginia. After reviewing the information provided, the Department determined that she was a domiciliary resident of Virginia and issued an assessment. The Taxpayer appeals, contending she 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 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 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 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. A taxpayer has the burden of proving that he has abandoned his Virginia domicile. If the information is inadequate to meet this burden, the Department must conclude that he intended to remain indefinitely in Virginia.

The Taxpayer began residing in Virginia in 2002 and purchased a home in Virginia in 2004. She remained in Virginia until leaving for a volunteer opportunity overseas in 2011. She obtained a position with a new employer in Maryland upon her return to the United States in 2013. At that time, she began leasing personal residences in Maryland. During this period, the Taxpayer got married and had a child in Maryland. It appears that she also filed Maryland resident income tax returns, including one for the tax year at issue. The Taxpayer moved to ***** (State A) in 2021 where she has purchased a home and obtained a State A driver’s license and vehicle registration.  

The Taxpayer retained connections to Virginia as well. She continued to own the Virginia residence she had purchased in 2004. The residence was not leased to third parties until 2021 and thus was available for the Taxpayer’s use. She also held a Virginia driver’s license which was renewed in 2017 and a Virginia motor vehicle registration.  

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 explains that she was busy with certain circumstances in her life and thus it was more convenient for her simply to renew the license and registration she had. In addition, she explains that by 2017 she did not intend to return to her Virginia residence because it was not suitable for a family to reside there with a small child. At the same time, she explains that she no longer wished to work in Maryland, so she had not thought to obtain a Maryland license and registration.  

The fact that an individual has a Virginia driver’s license is one factor to consider, among other possible factors, in any given domicile case. Nonresidents are not permitted to hold Virginia driver’s licenses. See Virginia Code § 46.2-323.1. They are, however, permitted to continue to use their licenses from their home states or countries. See Virginia Code § 46.2-307. For the purposes of Title 46.2 of the Code of Virginia, “nonresident” is generally defined as every person who is not domiciled in the Commonwealth. See Virginia Code § 46.2-100. Thus, in general, an individual must be a domiciliary resident of Virginia in order to hold a Virginia driver’s license.  

Individuals who have resided in Virginia more than six months, however, are deemed to be residents for purposes of applying most of the provisions of Title 46.2 of the Code of Virginia, including the driver’s licensing provisions of Title 46.2, Chapter 3 (Virginia Code § 46.2-300 et seq.). In addition, because an individual who has been physically present and residing in Virginia for more than six months may nevertheless remain a domiciliary resident of another state or country, it may be necessary in such cases to examine additional factors to determine whether a person who has obtained a driver’s license based on physical presence and actual residency in Virginia also intended to become a domiciliary resident of Virginia. However, once it is clear that an individual has established domiciliary residency in Virginia, subsequent renewals of a Virginia driver’s license even while absent from the state will be considered very strong evidence of the individual’s intent to remain a domiciliary resident of Virginia. That is because the basis of the individual’s claim to be entitled to a Virginia driver’s license would no longer be based on the length of time he was physically present in Virginia as an actual resident, but rather on the implication that he remained a domiciliary resident of Virginia.

Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct.” As such, the burden of proof is on the Taxpayer to show she was not subject to income tax in Virginia.  

As stated above, a change of domicile requires that a taxpayer prove two elements concurrently: 1) that she abandoned the old domicile and had no intent to return to it; and 2) that she established a new domicile, which must have been formed by physical presence coupled with the intent to remain permanently or indefinitely. In this case, the Taxpayer acknowledged that she did not intend to make Maryland her permanent home. In addition, her ongoing connections with Virginia raise doubts as to her intent to abandon her Virginia domicile. In particular, the renewal of her Virginia driver’s license at a time when she asserts she was no longer a Virginia resident and had no intention of ever returning to Virginia raises a substantial doubt as to her intent.

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. 

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.

CONCLUSION

After carefully reviewing all of the evidence provided, I find that that the Taxpayer has failed to prove that she abandoned her Virginia domicile or intended to acquire a Maryland domicile. Therefore, she was an actual resident of Maryland and a domiciliary resident of Virginia for the 2017 taxable year. As a so-called “dual resident” of Maryland and Virginia, the reciprocal agreement did not apply, and the Taxpayer was permitted to claim a credit for income tax paid to Maryland to the extent allowable under Virginia Code § 58.1-332.

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 her Virginia income tax liability. Therefore, the Taxpayer should file a 2017 Virginia resident income tax return to more accurately reflect her Virginia income tax liability. The return should be submitted within 60 days from the date of this letter to: Virginia Department of Taxation, Office of Compliance, Desk Audit, RAP, P.O. Box 5610, Richmond, Virginia 23220-0610, Attention: *****. Upon receipt, the return 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 adjusted based on the available information.

The Code of Virginia sections and public documents cited are available online 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/3900.X