Rulings of the Tax Commissioner

July 13, 2023

Re: § 58.1-1821 Application: Individual Income Tax

Dear *****:

This will reply to your letter in which you seek reconsideration of the the Department’s determination letter, issued as Public Document (P.D.) 22-74 (4/19/2022).

FACTS

In PD. 22-74, the Department found that the Taxpayer remained taxable as a domiciliary resident of Virginia for the 2018 taxable year. The Taxpayer contends that the facts of his case are like those in P.D. 01-127 (9/14/2001), in which the Department determined that the taxpayer abandoned his Virginia domicile. The Taxpayer seeks a reconsideration of P.D. 22-74, asserting that the Department’s determination was incorrect.

DETERMINATION

Reconsideration

Title 23 of the Virginia Administrative Code (VAC) 10-20-165 F provides that a taxpayer who disagrees with the Department’s final determination issued pursuant to Virginia Code § 58.1-1822 may request a reconsideration of the determination. In order to grant a request for reconsideration, the request must be received by the Department no later than 45 days after the date of the determination letter, and a taxpayer must meet one of four specific requirements set forth in that section: 

1. The facts upon which the original determination is based are misstated by    the Tax Commissioner or are inaccurate, and the determination would have a different result based on a correction of the Tax Commissioner’s misstatement of the facts presented or a clarification of the original facts presented in the taxpayer’s administrative appeal;

2. The law upon which the original determination is based has been changed by legislation, court decision or other authority effective for the tax period(s) at issue;

3. The policy upon which the original determination is based is misapplied, and he determination would have a different result based on the application of the proper policy; or

4. The taxpayer has discovered additional evidence or documentation that was not available to the taxpayer at the time the original administrative appeal was filed with the Department, and the additional evidence or documentation could produce a result different from the original determination.

In this case, none of the reconsideration requirements have been satisfied. The Taxpayer should be aware that the Department interprets the third criteria to mean that the Department has not applied the correct law to the case. Here, there is no dispute that the law of domicile applies, and this was the law that the Department applied to the facts in P.D. 22-74. The Taxpayer simply believes that the Department reached the incorrect result. If the Department were to interpret the third criteria in that manner, there would be no reason to have criteria. Every taxpayer who asks for a reconsideration could simply say that the Department “misapplied” policy by not arriving at the result the taxpayer was seeking. See PD. 20-188 (11/10/2020). In addition, specific reconsideration criteria are in place to ensure an economical administrative appeals process. The time for a taxpayer to compare and contrast past cases is when they first submit their appeal to the Department, not after they receive an adverse appeal determination.

Residency

Even though the Department finds that the reconsideration criteria have not been met in this case, I am taking the opportunity to add further comments in light of my own experience as Commissioner. Domicile is a frequent issue that comes before the Department on appeal, and the Department has issued hundreds of domicile determinations since determination letters have been made publicly available. While the Department strives for consistency, the determination of a bona fide intent to change one’s domicile is a factual matter that can only be resolved on an individual case-by-case basis. See P.D. 85-15 (2/14/1985), P.D. 96-198 (8/1 9/1996), PD. 13-93 (6/11/2013), and P.D. 22-41 (3/8/2022). In addition, as with any body of law, the analytical approach may evolve over time as more cases are examined and the agency gains more institutional experience dealing with the issue.

The facts of PD. 22-74 broadly fall into a pattern that has emerged over time: a taxpayer’s failure to relinquish Virginia connections to a degree that raises substantial doubts as to their intent to abandon Virginia as a domiciliary state. When a taxpayer maintains a personal residence that they do in fact return to, keeps a Virginia driver’s license which is renewed during the time they claim not to be a resident of Virginia, and maintains three registered vehicles in the state, cumulatively, those facts raise substantial doubts as to domiciliary intent. Abandonment of the prior domicile is one of the two prongs of the test which must be satisfied concurrently along with establishing a domicile elsewhere. Further, when a taxpayer performs none of those activities in the next state they claim to be their domicile, it is difficult for the Department reasonably to conclude that a domicile change was intended.

As for P.D. 01-127, the taxpayer clearly established far more connections with the foreign country than the Taxpayer established with either of the states at issue in P.D. 22-74. Although the taxpayer in P.D. 01-127 retained some connections with Virginia, there are several notable distinctions. Most notably, the mere retention of a driver’s license is seen as less of an affirmative demonstration of domiciliary intent than obtaining or renewing one. Individuals who are no longer residents of Virginia are generally not permitted to obtain or renew their Virginia driver’s license. In fact, making a false statement to the Department of Motor Vehicles concerning one’s residency status is an act subject to criminal penalty under Virginia Code § 46.2-348. In addition, retention of a previous state voter’s registration by a United States citizen living overseas cannot be considered a factor as to their domiciliary intent, pursuant to federal law. See 52 U.S.C. § 20309.

Most states in the United States do have a broad-based income tax substantially similar to Virginia’s, and in instances where an individual may have actually been living and working in another state but retained domiciliary residency with Virginia, that so-called “dual resident” taxpayer would be afforded a credit for income tax paid to the other state on their Virginia return. See Virginia Code § 58.1- 332. Often, such credit will substantially reduce, if not completely eliminate, a taxpayer’s Virginia income tax liability.

The Department has noticed, however, that the stakes are often raised in domicile cases simply by the fact that some states in the United States do not have an income tax. Typically, as here, an individual is attempting to claim the state that does not have an income tax as their one and only state of residence for state income tax purposes. In those cases, should the individual be found to have retained domiciliary residence with Virginia, no credit for income tax paid to the other state would be available. While other states are free to do as they will, the fact that some states do not follow the same or similar system as the majority of other states can magnify the domicile issue into an “all-or-nothing” proposition where a taxpayer is either going to owe no income tax to any state or all income tax to one state. Undoubtedly, this inconsistency in state taxing regimes has generated a substantial number of disagreements that the Department then has to adjudicate.

I recognize the Taxpayer’s disagreement with the Department’s determination in P.D. 22-74. However, he has failed to meet the requirements for a reconsideration. Consequently, P.D. 22-74 constitutes the Department’s final determination in this matter.

The assessments, therefore, are upheld. Updated bills will be issued to the Taxpayer shortly, which will include accrued interest to date. The Taxpayer should remit the balance due upon receipt to avoid the accrual of additional interest and possible collections actions.

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/4208.B