August 15, 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 client, ***** (the “Taxpayer”), for the taxable year ended December 31, 2016.
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 2016 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 subject to Virginia tax. Based on the information received, the Department determined that the Taxpayer was taxable as a Virginia resident and issued an assessment. The Taxpayer appeals, contending she was a resident of ***** (State A), the same as her military spouse, and exempt from Virginia income taxation pursuant to ***** (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 domicile with no intention of returning. 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 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, 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 domicile.
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.) 10-32 (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 education 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 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 Taxpayer moved with her spouse to State A, his home of residence, pursuant to her spouse’s military orders in 2012. While in State A, the Taxpayer did not surrender her ***** (State B) driver’s license in exchange for a State A license, nor did the Taxpayer register to vote in State A. The couple then moved from State A to Virginia pursuant to her spouse’s new military orders in 2014. The Taxpayer still currently works and lives in Virginia. She also currently holds a Virginia driver’s license and uses a Virginia address listed on her wage statements.
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).
Virginia Code § 46.2-306 specifically exempts service members on active duty, their spouses, and dependent children residing in Virginia from the requirement to obtain a Virginia driver’s license when such individuals have been licensed as drivers under the laws of their home state. Accordingly, when a service member or spouse obtains a Virginia driver’s license, the Department considers the action to be an indication of an intent to change one’s domicile. The Department, however, may give the driver’s license factor less weight in such cases if the service member or spouse provides evidence that they are no longer entitled to hold a driver’s license in the home state, or that it was impossible or impractical to do so.
Based on the evidence provided, the Taxpayer failed to make the kind of connections indicating an intent to establish domicile. The Taxpayer never obtained a State A license and she surrendered her State B license when she obtained her Virginia driver’s license. The Taxpayer has not provided evidence that she was no longer entitled to hold her State B license or that it was impossible or impractical to do so. By her actions, it appears the Taxpayer did not intend to give up her State B domicile until she moved to Virginia.
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. The Act requires that both the service member and the spouse share the same domicile for the spouse to be exempt from taxation in the state they live in pursuant to military orders. In this case, even if the Taxpayer did not establish domiciliary residency in Virginia, she did not establish the kinds of permanent connections that would indicate she intended to make State A her domicile. The facts indicate she was present in State A for approximately two years pursuant to her spouse’s military orders. The fact that the spouse may have been a domiciliary resident of State A, although not irrelevant, is itself insufficient to establish that the Taxpayer formulated the requisite intent to establish domiciliary residency in State A at that time. See P.D. 17-97 (6/12/2017). By being solely present in State A pursuant to her spouse’s military orders, it was necessary for her to demonstrate independently at that time that she intended to remain permanently or indefinitely in State A. In the Department’s opinion, the Taxpayer has not demonstrated such intent because of her failure to establish any permanent connections of her own in State A.
Because the Taxpayer did not share the same domicile as her spouse, she is not eligible for the protection afforded under the Act. Even if she has not established domicile in Virginia, the Taxpayer has been living in Virginia since 2014 and was present in Virginia for more than 183 days in 2016. As such, she at least would have been taxable as an actual resident of Virginia for the 2016 taxable year. Accordingly, the Taxpayer was a resident of Virginia in 2016 and was required to file a Virginia income tax return.
The assessment at issue was made based on the best information available to the Department pursuant to Virginia 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 2016 Virginia resident income tax return. The return should be submitted within 60 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 return will be reviewed and assessment will be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be considered to be correct.
The Code of Virginia sections, tax bulletin, 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/4113.Y