July 13, 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 years ended December 31, 2017, and 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 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 her income was taxable in Virginia. In response, the Taxpayer claimed that she was exempt from Virginia income tax under the Service Members Civil Relief Act (the “Act’) because she was the spouse of a military service member stationed in Virginia and they were both domiciliary residents of ***** (State A).
The Department requested additional information from the Taxpayer regarding her claim and additional documentation was submitted. As a result of its review, the Department concluded that the Taxpayer was taxable as a domiciliary resident of Virginia and an assessment was issued. The Taxpayer appealed, contending she was exempt from Virginia income tax under the Act.
The Taxpayer’s appeal also covered a separate assessment issued for the 2018 taxable year, but that assessment has been abated. This determination, therefore, will be limited to the assessment issued for the 2017 taxable year.
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 that person and the place to which that person intends to return even though they may be 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.
Residency of a Military Spouse
The Act, codified at 50 U.S.C. § 3901 et seq., provides that military personnel do not abandon their legal domicile solely 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) provides 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.” The Act does not apply to the spouses of military and naval personnel who have established domiciliary status within Virginia. See Public Document (P.D.) 11-114 (6/21/2011).
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 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 domicile elsewhere.
In determining domicile, the Department will generally consider 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 and 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 of the facts and circumstances of the particular case. A simple declaration is not sufficient to establish domicile. See United States v. Minnesota, 97 F. Supp. 2d 973 (D. Minn. 2000).
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 personal property and move the family. See 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, voting registrations, and educational 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 general, the Department will not seek to tax the spouse 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 filing a State of Legal Residence Certificate (Department of Defense Form 2058), 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, they would be considered to be a resident of the other state even though they work, live, and establish a place of abode in Virginia.
In PD. 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.
The Taxpayer retained few connections with State A during the time she resided in Virginia. The Taxpayer maintained her State A nursing license. She also filed a State A nonresident income tax return in 2017. The Taxpayer filed both her State A and federal income tax returns in care of her tax preparer’s State A address. The Taxpayer also has family in State A.
The Taxpayer established numerous connections with Virginia. She leased a personal residence in Virginia from May 2016 to April 2020, and her children attended Virginia public schools from 2016 through 2020. She registered to vote in Virginia and participated in the 2018 general election and a 2020 primary. In addition, she obtained a Virginia driver’s license in July 2017 and registered three vehicles in Virginia.
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).
With regarding 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 in which he votes. Residence, for all purposes of qualification to vote, requires both domicile and a 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. In addition, should a military spouse choose to register to vote in Virginia, Virginia law provides a presumption that such spouse established domicile if they had a physical presence and a place of abode in Virginia. See Virginia Code § 24.2-417.1. The presumption can be overcome if the spouse expressly states otherwise. See Id. This provision, however, provides no exception to the domicile requirement for military spouses. The fact remains that the spouse must be both domiciled in and have a place of abode in Virginia to be eligible to vote. Consistent with the precedent established by the Virginia Supreme Court in Coopers Adm’r v. Commonwealth, 121 Va. 338,93 SE. 680 (1917), the Department will consider the fact that a military service member or spouse obtained a Virginia voter’s registration and voted in elections in Virginia to be very strong evidence that that individual considered Virginia to be her domicile during the time she held and used such registrations.
The Taxpayer explains that she filed a State A nonresident return because State A allowed military service members and their spouses to retain their State A domicile even though they may be treated as nonresidents for state income tax purposes under certain circumstances. The fact that State A may allow this tax treatment for military spouses, however, has no bearing on the effect that the Taxpayer’s actions in Virginia may have had to indicate her intent to establish a Virginia domicile.
The Taxpayer further explains that the actions she took in obtaining a Virginia driver’s license, vehicle registrations, and voter’s registration were done for convenience, As stated above, the Department understands that a military spouse will generally comply with jurisdictional authorities with regard to requirements in the state where the new duty station is located. Many states, however, including Virginia, provide relief for military service members and their families from compliance with such jurisdictional requirements. While it is impractical for the Department to perform a comprehensive review of every possible avenue of relief that may have been available to a military spouse in each state in a given case, the Department has addressed relief available to military service members and their spouses under Virginia law.
For example, 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 will typically consider that action to be a strong indicator of intent to change domiciliary residency. 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. The Taxpayer states she attempted to renew her State A driver’s license over the telephone, but was told she must physically go to a State A office to obtain a renewal. She says she then obtained a Virginia driver’s license because it was not practical for her to return to State A to renew her State A license.
In any domicile determination, regardless of whether it involves military personnel or civilians, the ultimate question to be answered is whether the taxpayer was present in a state with the intention to remain permanently or indefinitely and whether the taxpayer abandoned a prior domicile with no intention to return. The Department empathizes with military service members and their spouses. The Department, however, is also charged with administering the tax laws fairly and equitably across a broad spectrum of citizens, including military service members and their spouses. Under the facts of the current case, had the Taxpayer not been married to a military service member, the Department unquestionably would have considered her to have established a Virginia domicile. The only difference the Department has to consider for a military spouse is the Act. As the federal court observed in United States v. Minnesota, the Act is not an absolute bar to state taxation for military service members and their spouses. See United States v. Minnesota, 97 F. Supp. 2d at 984. The Act also does not prevent domicile changes from occurring for service members or their spouses, and it also does not prevent a state from considering the same domicile factors it uses for all taxpayers in making that determination. See Id. at 985. If a service member or a military spouse performs the same actions that would clearly result in a domicile change for a civilian, it seems only just and fair for the Department to reach the same conclusion for service members and their spouses.
Recent Amendments to the Act
On December 31, 2018, Congress enacted the Veterans Benefits and Transition Act of 2018. This federal legislation amends the Act, allowing the spouse of a service member to elect the same residence as the service member for state tax purposes, even if the spouse has a different residency or domicile from that of the service member. This election can be made annually beginning with taxable year 2018 for any taxable year of the marriage, regardless of the date on which the marriage of the spouse and the service member occurred. This election does not affect taxes imposed or paid for 2017 or earlier. See VTB 19-2 (2/25/2019).
Based on the Taxpayer’s representations that both she and her husband claim State A as their domicile, the Department abated the 2018 assessment while the appeal was pending. The Department, however, issues no opinion at this time concerning the domicile of the Taxpayer’s spouse, and the Department’s action in abating the 2018 assessment should not be construed as a determination as to his residency status.
CONCLUSION
After carefully considering all of the information and arguments presented, the Department finds that the Taxpayer was taxable as a domiciliary resident of Virginia for the 2017 taxable year. The assessment at issue was made based on the best information available to the Department pursuant to Virginia Codes 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 2017 Virginia resident income tax return. 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 received within the allotted time, the assessment will be considered to be 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 (804) *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/4258X