Residency: Nonresidents - Rental Property
March 1, 2023
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.
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 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
Residency
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 that person and the place to which that person intends to return even though residing elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon their 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 their 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 their 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 person’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. The taxpayer has the burden of proving that their Virginia domicile has been abandoned. If the information is inadequate to meet this burden, the Department must conclude that the taxpayer intended to remain indefinitely in Virginia.
The Taxpayer established connections in State A that indicate he may have intended to establish domicile there. The Taxpayer has lived and worked in State A since 2015. He leased three personal residences in State A and has filed resident income tax returns using a State A address. He also registered to vote in State A in 2016 and voted in the State A 2016, 2018, and 2020 elections.
The Taxpayer also retained some connections with Virginia. He owned rental properties in Virginia, but states he has never lived at these properties. He retained a Virginia driver’s license which he obtained in 2015 and was renewed in May 2020. Further, he has registered three vehicles in Virginia at his parents’ residence since 2015, two of which were registered in Virginia as of 2017.
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 that individual 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).
Based on the evidence provided, the Taxpayer had been living and working in ***** (State B) prior to moving to State A. He had held a State B license since 2008, and registered vehicles in State B from 2006 to 2015. The Taxpayer explains that he was visiting his parents in Virginia in 2015 when his car broke down. He purchased a new car and had it registered in Virginia. He also explains that his State B license was expiring and it was more convenient to obtain a Virginia license than returning to State B to renew it. Finally, the Taxpayer explains that his license was up for renewal in 2020 and he was allowed to renew his license by mail, which he believed was less risky than getting a license in State A during the early days of the COVID-19 pandemic.
Although he established a number of connections in the Commonwealth, the question still remained as to whether the Taxpayer was residing with the requisite intent to establish Virginia as his domicile. He neither leased or owned a personal residence in Virginia. In addition, he did not file any Virginia income tax returns. While technically present in Virginia, it seems unlikely that the Taxpayer satisfied the physical presence test to establish domicile in Virginia at the time he obtained the Virginia license and vehicle registrations. Based on a preponderance of evidence, therefore, I find that the Taxpayer was not taxable as a domiciliary resident of Virginia during the 2017 taxable year.
Nonresident Individuals
Under Virginia Code § 58.1-325, individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. Virginia Code § 58.1-302 limits the term income and deductions from Virginia sources to the items of income, gain, loss and deductions attributable to the ownership of property in Virginia or the conduct of a business, trade, profession or occupation in Virginia. Leasing property in Virginia is conducting a business in Virginia for Virginia income tax purposes.
In accordance with Title 23 of the Virginia Administrative Code (VAC) 10-110-180 A, the Virginia taxable income of a nonresident is computed by multiplying his Virginia taxable income (computed as if he were a resident) by the ratio of his net income, gain, loss, and deductions from Virginia sources to his net income, gain, loss, and deduction from all sources. Thus, a nonresident individual who has income from carrying on a business, trade, profession, or occupation within Virginia is required to file a Virginia Nonresident Individual Income Tax Return, currently Form 763, pursuant to Virginia Code § 58.1-341, unless the individual meets the filing exception described in Virginia Code § 58.1-321. See P.D. 07-148 (9/12/2007).
For purposes of determining whether the threshold has been met, a taxpayer’s federal adjusted gross income (FAGI) is taken into account, along with certain additions to, or subtractions from, FAGI that are specifically set out in Virginia statutes. In this case, it appears that the Taxpayer had sufficient total income to exceed the filing threshold. See Virginia Code 58.1-321 A. The Taxpayer, however, had a loss from his Virginia rental property in 2017. As a result, he ultimately did not have any Virginia taxable income even though he failed to file a nonresident return as required by statute. See Virginia Code § 58.1-341 A 2.
CONCLUSION
While the Department concedes that the Taxpayer was not a resident of Virginia for the taxable year at issue, he should be aware that continuing connections with Virginia, such as possession of a Virginia driver’s license and maintaining vehicle registrations will likely result in future contacts by the Department with respect to the situs of the Taxpayer’s 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. In addition, the Taxpayer should be aware that Virginia law does not permit nonresidents to obtain Virginia driver’s licenses, and persons providing a false statement to an agency of the Commonwealth may be subject to penalty under Virginia law. Any applicant who knowingly makes a false statement to the DMV is subject to penalties under Virginia Code § 46.2-348.
Finally, it appears that the Taxpayer normally has sufficient total income to exceed the filing threshold under Virginia Code § 58.1-321. For any taxable year in which the Taxpayer’s income exceeds such filing threshold, he must file a return pursuant to Virginia Code § 58.1-341.
The Code of Virginia sections, regulation 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/4277.B