Credit: Taxes Paid to Another State
August 31, 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 ***** (the “Taxpayer”) for the taxable year ended December 31, 2018.
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 2018 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 his income was taxable in Virginia. Based on the information provided, the Department concluded that the Taxpayer was taxable as a domiciliary resident of Virginia and issued an assessment. The Taxpayer appeals, contending he was a resident of ***** (State A).
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 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.
The Taxpayer indicated that his employer would assign him to different parts of the country for long term temporary assignments after which he would eventually return to Virginia. One such assignment was to State A in 2018. Temporary job assignments, regardless of their duration, do not demonstrate an intent to acquire a permanent residence outside Virginia. See Public Document (P.D.) 18-54 (4/19/2018). The Taxpayer also leased a personal residence in State A, and filed a 2018 State A resident income tax return.
The Taxpayer also retained connections with Virginia. He maintained a Virginia driver’s license and had a vehicle that was registered in a Virginia locality during the taxable year at issue. Although not clearly documented, it appears the Taxpayer had a permanent place of abode available to which he could return after completing temporary job assignments.
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).
As stated above, a change of domicile requires both establishing a new domicile and abandoning the old. These requirements must also be satisfied concurrently. Establishing domicile requires physical presence together with the intent to remain in the new domicile permanently or indefinitely. Taxpayers who are living and working in other states on temporary job assignments would not normally satisfy this criteria. In addition, the Taxpayer’s continuing connections with Virginia, in particular maintaining and renewing a Virginia driver’s license and having a vehicle registered in the Commonwealth, indicate a desire to retain residency in Virginia. Therefore, after carefully considering all of the evidence presented, I find that the Taxpayer remained taxable as a domiciliary resident of Virginia for the 2018 taxable year.
It appears that the Taxpayer believed he was not required to file a Virginia income tax return for the 2018 taxable year because he had already filed a State A return. As stated above, however, a domiciliary resident of Virginia living and working in another state or country remains subject to Virginia income tax. This is true even if the Taxpayer files an income tax return there. Specifically, Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Virginia Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return.
Credit for Income Tax Paid to another State
Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia income tax return for taxes paid to another state provided the income is either earned or business income. 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 Department has computed a credit for income tax paid to State A pursuant to Virginia Code 58.1-332 A and adjusted the assessment accordingly.
CONCLUSION
Based on the facts presented, the Taxpayer remained taxable as a domiciliary resident of Virginia for the 2018 taxable year and was still required to file a 2018 Virginia income tax return even though he filed a return for that year in State A. Accordingly, the Department was correct in issuing an assessment to the Taxpayer.
The assessment, however, was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. In order for the Department to have the best information that represents the Taxpayer’s Virginia income tax liability for the year at issue, he should file a 2018 Virginia resident income tax return and be sure to claim the credit for income tax paid to State A. The 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 return will be reviewed and the assessment will be adjusted, as appropriate. If the return is not submitted with the time allotted, the assessment, as adjusted, will be considered to be correct.
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/4092.B