Rulings of the Tax Commissioner

August 10, 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 assessment issued to your clients, ***** and ***** (the “Taxpayers”), for the taxable year ended December 31, 2020.

FACTS

The Taxpayers, a husband and wife, filed a Virginia part-year income tax return for the 2020 taxable year. The Department requested additional information from the Taxpayers in order to determine whether they properly filed as part-year residents. Based on the information provided, the Department adjusted the Taxpayers’ part-year return to a resident return and issued an assessment. The Taxpayers appeal, contending they became residents of *****.

DETERMINATION

Treaty

The Taxpayers argue that under the ***** (the “Convention”), they were considered residents of ***** and thus were no longer subject to Virginia taxation. Article 2 of the Convention states, in pertinent part, “The existing taxes to which this Convention shall apply are . . . in the case of the United States, the Federal income taxes imposed by the Internal Revenue Code . . . .” Pursuant to this article, the Convention applies only to certain taxes imposed at the federal level by the United States and the Canadian national governments. Taxes imposed by state and local governments, including Virginia, are unaffected by the Convention. See Public Document (P.D.) 96-228 (9/9/1996), P.D. 07-39 (4/20/2007), P.D. 13-232 (12/18/2013), P.D. 18-75 (5/2/2018), and P.D. 19-90 (8/15/2019).  

Further, even if the Taxpayers were considered residents of ***** for purposes of applying the Convention’s provisions, Virginia law still governs the question whether they remained domiciliary residents of Virginia and were thus subject to Virginia taxation. As stated above, taxes imposed by state and local governments are not subject to the Convention, and thus state and local law continues to control.  

For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Chapter 3 of Title 58.1 of the Code of Virginia. Thus, if the Taxpayers were residents of Virginia, as defined under Virginia law, and had FAGI, they would have been subject to Virginia income tax to the extent provided by Virginia’s income tax statutes and regulations.

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 or she has abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Department must conclude that he or she intended to remain indefinitely in Virginia.

In this case, the Taxpayers have performed actions indicating an intent to establish domicile in Canada. The wife accepted employment in Canada and began residing there with her husband in January 2020. Although the employment assignment was initially set to end in January 2022, the Taxpayers applied for permanent residency in Canada in October 2021, and extended their permanent residency status to September 2022 while awaiting a decision. The Taxpayers obtained vehicle permits in Canada as well as Canadian driver’s licenses. They also obtained Canadian healthcare and paid income taxes to Canada.  

The Taxpayers maintained several connections to Virginia. They continued to own two homes in Virginia but leased them to third parties. The Taxpayers also retained Virginia driver’s licenses. In addition, the wife used her Virginia voter registration to vote in 2021.

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).

With regard to voting, the Department has observed that federal law generally allows United States citizens living abroad to vote in federal elections using a voter’s registration from the state of the individual’s last domicile. See 52 U.S.C. § 20310. See also P.D. 10-203 (9/1/2010). In addition, the exercise of such federal voting rights by an overseas citizen shall not affect the domicile or residence of such citizen for purposes of any federal, state, or local tax. See 52 U.S.C. § 20309. 
    
In this case, the Taxpayers have established significant connections in *****. In particular, the Taxpayers applied for permanent residency in *****, which evidences a strong intent to establish domicile in *****. In addition, although the Taxpayers maintained homes in Virginia, they were subject to long term leases and not available for the Taxpayers’ use. Further, although the Taxpayers retained Virginia driver’s licenses, they also had ***** licenses as well, and the Taxpayers have not renewed their Virginia licenses since they began residing in *****.

The Department acknowledges that a change of domicile occurs as part of a process in which no single factor is dispositive. After carefully considering all of the evidence presented, I find that the Taxpayers adequately established their intent to abandon Virginia and establish ***** as their domicile. Accordingly, the assessment will be abated.

The Taxpayers, however, should be aware that continuing connections with Virginia, such as retaining Virginia driver’s licenses, will likely result in future contacts by the Department with respect to the situs of the Taxpayers’ domicile. As in any determination, a change in the facts and circumstances could result in a change in the Department’s determination in subsequent taxable years. 

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/4036.Y