Administration: Written Advice - Requirements for Reliance
September 28, 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 assessments issued to your client, ***** (the “Taxpayer”), for the taxable years ended December 31, 2016, and 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 2016 taxable year. A review of the Department’s records showed that the Taxpayer had not filed returns. 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 for the 2016 and 2017 taxable years and issued assessments. The Taxpayer appeals, contending she was a resident of ***** (State A) until October 2017.
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 explains she left Virginia in 2012 when she moved to ***** (State B) for a position with a new employer. In February 2014, the Taxpayer left State B and resided for seven months in ***** (State C). She then moved to State A after accepting a new position with the same employer. The Taxpayer leased personal residences in State A until October 2017 when her employment ended and she returned to Virginia.
The Taxpayer retained significant connections to Virginia. She continued to own the Virginia residence she had purchased in 1993. The residence was not leased to third parties, but was occupied by an employee of the Taxpayer whom she paid to look after the residence. She also retained her Virginia driver’s license, voter registration and several Virginia motor vehicle registrations, including a Virginia registration for a vehicle purchased in State A in 2017. The Taxpayer continued to receive information returns and other mail at her Virginia address, including her 2016 and 2017 W-2s and utility and cable bills for service at her State A residences. The Taxpayer’s 2014 through 2017 federal Forms 1040 were also filed using her Virginia address. In addition, she claimed a home office deduction on her Schedule C in 2016 and 2017 based on expenses associated with her Virginia residence.
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 retained her Virginia driver’s license because it had not yet expired. 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. In addition, the laws of both State A and State B require new residents to obtain a State A or State B driver’s license within 30 or 60 days, respectively, of establishing residency. The Taxpayer’s failure to do so in either state raises doubts as to whether she intended to abandon her Virginia domicile.
She also explains that the 2017 vehicle registration in Virginia was completed by the dealer on her behalf based on her Virginia driver’s license. It is unclear whether this was done customarily by the dealer or at the direction of the Taxpayer.
The Taxpayer states that she did not use her Virginia voter registration to vote in Virginia while living in State A. She did, however, vote in Virginia in 2012 when she contends she had already abandoned Virginia for State B. 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. Consistent with the precedent established by the Virginia Supreme Court in Coopers Adm’r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917), the Department will consider the fact that a taxpayer 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.
Finally, the Taxpayer states that she did not sell her Virginia residence because its market value at the time was depressed. The house, therefore, remained available for her to move back into when she returned to 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. The Department expects that when taxpayers are seeking a permanent change of domicile, they will normally register vehicles, obtain a new driver’s license, register to vote and perform other official acts indicating their intent to change domicile. To the extent such connections may be retained with Virginia, it appears that the taxpayer may not have been certain that they intended to abandon their Virginia domicile. If a permanent change of residence were intended, there would be no need to retain such connections with the former state. In this case, the Taxpayer’s ongoing connections with Virginia raise significant doubts as to her intent to abandon her Virginia domicile.
Prior Audit
The Taxpayer contends that the Department cannot assert that she was a Virginia domiciliary resident for 2016 or 2017 because it previously determined that she had abandoned her Virginia domicile.
The Taxpayer was selected for review in May 2016 for failing to file a 2013 Virginia income tax return. When no response was received, an assessment was issued for the 2013 taxable year in August 2016. The Taxpayer also filed Virginia resident returns for the 2014 and 2015 taxable years in October 2015 and October 2016, respectively.
The Taxpayer contacted the Department in June 2018, claiming that she was a resident of State B in 2013 and State A in 2015. She did not contest the 2014 Virginia resident return. She stated she had filed the 2015 Virginia return in error. The Taxpayer provided the Department with documentation in support of her claim, including her federal Forms 1040, State B 2013 return, State A and State B lease agreements and utility bills, and employment offer letters. Based on a review of the Taxpayer’s documentation, the Department abated the assessments and refunded payments previously made for the 2013 taxable year. The abatements were made without conducting a full domicile review and no correspondence was sent to the Taxpayer explaining the Department’s reasons for making the abatements.
Virginia Code § 58.1-1835 provides that the Department must abate any portion of tax, interest and penalty attributable to erroneous written advice by the Department under the following conditions:
1. The written advice was reasonably relied upon by the taxpayer and was in response to a specific written request by the taxpayer;
2. The portion of the penalty or tax did not result from a failure by the taxpayer to provide adequate or accurate information; and
3. The facts of the case described in the written advice and the request thereof are the same, and the taxpayer’s business or personal operations have not changed since the advice was rendered.
In P.D. 19-80 (8/2/2019), the Department agreed to abate an assessment because of reliance on written advice from a prior audit where the taxpayer had submitted a complete domicile questionnaire disclosing all of his Virginia connections. In that case, the auditor performed a complete domicile analysis and the facts did not change between the taxable year at issue in the prior audit and the year at issue in the appeal.
In this case, the Department’s conclusion for the 2013 and 2015 taxable years merely relied on a letter from the Taxpayer claiming she was not a Virginia resident, and including a copy of her lease agreements, employment offers and a 2013 State B return. Because a full domicile review was not conducted and because the Department did not issue a letter explaining the reason for the 2013 and 2015 abatements, those abatements did not meet the standards of written advice as to the Taxpayer’s domicile status. In any event, the abatements were not completed until June 2018 and July 2018, respectively, after the filing deadlines for the taxable years at issue in this case had already passed. Therefore, it was not written advice upon which the Taxpayer could have relied in deciding whether or not she was a Virginia domiciliary resident required to file Virginia resident returns for the 2016 or 2017 taxable years.
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. Therefore, she remained subject to income tax as a domiciliary resident of Virginia for the 2016 and 2017 taxable years. In addition, even if there was a prior erroneous determination regarding the Taxpayer’s domicile status, it did not constitute written advice upon which the Taxpayer was entitled to rely for the years at issue.
The assessments at issue were 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 2016 and 2017 Virginia resident income tax returns to more accurately reflect her Virginia income tax liability. The returns 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 returns will be reviewed and the assessments will be adjusted, as appropriate. If the returns are not received within the allotted time, the assessments will be considered correct.
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/4080.X