Rulings of the Tax Commissioner

July 13, 2023

Re: § 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 ***** (the “Taxpayer”) for the taxable years ended December 31, 2017, through 2019.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia income tax returns for the 2017 through 2019 taxable years. 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 his income was taxable in Virginia. Based on his responses and the information otherwise available to the Department, the Department determined that the Taxpayer was taxable as a domiciliary resident of Virginia and issued assessments to the Taxpayer. The Taxpayer appeals, contending he was a resident of Maryland.

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.

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 explains that he lived and worked in Maryland during the taxable years at issue. Maryland income tax was withheld from his wages, and Maryland resident returns were filed for each of the taxable years at issue. During a telephone interview with an Appeals and Rulings staff member, the Taxpayer claimed that he has resided since 1996 in a residence in Maryland that he purchased with his girlfriend. According to property records, however, the Taxpayer is not listed as an owner of this residence. Further, his statement appears inconsistent with the fact that the Taxpayer filed Virginia resident income tax returns for the majority of taxable years from 2000 through 2012.

In any event, the Taxpayer retained significant connections to Virginia. The Taxpayer has owned a personal residence in Virginia since 2006. The Taxpayer explains that this residence was purchased so his grandmother would have a place to live. He has also held a Virginia driver’s license for a number of years. It is unclear when the Taxpayer first obtained the license, but he has renewed it at least twice during the period he claims to have only been a Maryland resident, the latest time being in March 2018. In addition, he owned several vehicles that were registered in Virginia during the taxable years at issue.

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 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.

Individuals who have resided in Virginia more than six months, however, are deemed to be residents for purposes of applying most of the provisions of Title 46.2 of the Code of Virginia, including the driver’s licensing provisions of Title 46.2, Chapter 3 (Virginia Code § 46.2-300 et seq.). In addition, because an individual who has been physically present and residing in Virginia for more than six months may nevertheless remain a domiciliary resident of another state or country, it may be necessary in such cases to examine additional factors to determine whether a person who has obtained a driver’s license based on physical presence and actual residency in Virginia also intended to become a domiciliary resident of Virginia. However, once it is clear that an individual has established domiciliary residency in Virginia, subsequent renewals of a Virginia driver’s license even while absent from the state will be considered very strong evidence of the individual’s intent to remain a domiciliary resident of Virginia. That is because the basis of the individual’s claim to be entitled to a Virginia driver’s license would no longer be based on the length of time he was physically present in Virginia as an actual resident, but rather on the implication that he remained a domiciliary resident of Virginia.

The Department expects that when individuals 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. Retaining such connections with Virginia raises considerable doubt as to the individuals intent 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 obtained and maintained these sorts of permanent ties with Virginia and established none with Maryland.

The Taxpayer seems to believe that he should not be subject to income tax in Virginia simply because he lived and worked in Maryland for at least 183 days during each of the taxable years at issue. While this would have established him as a so-called “actual resident” of Maryland for income tax purposes, an individual can remain a domiciliary resident of one state white actually living and working in another. The Taxpayer’s filing status with Maryland has no bearing on his residency status with Virginia, which is a separate determination made under Virginia law.

As stated above, a change of domicile requires both establishing a new domicile and abandoning the old. These requirements must also be satisfied concurrently. Even if the Taxpayer had the requisite intent to establish domicile in Maryland, the connections he has retained with Virginia raises too substantial of a doubt as to whether he intended to abandon his Virginia domicile. In addition, apparent inconsistencies with the available information further complicate the Department’s ability to discern the Taxpayer’s true intent.

Reciprocity

Virginia Code § 58.1-342 B grants the Department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income tax when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. In addition, employers are not required to withhold Virginia income tax from residents of these states. Virginia currently has this type of agreement with Maryland, West Virginia, and Pennsylvania.

The reciprocal income tax agreement between Virginia and Maryland was most recently updated in 2006. See Virginia Tax Bulletin (VTB) 06-8 (12/27/2006). The updated agreement makes clear that reciprocity does not apply to a taxpayer who is a domiciliary resident of one state, but who maintains a place of abode and spends an aggregate of more than 183 days of the taxable year in the other state. In this case, it appears that the Taxpayer was an actual resident of Maryland and a domiciliary resident of Virginia. As a so-called “dual resident,” the reciprocal agreement did not apply.

Credit for Taxes Paid to another State

Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia return for income taxes paid to another state provided the income is either earned or business income or gain from the sale of a capital asset. 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 limitation is computed by multiplying the individual’s Virginia tax liability by a fraction, the numerator of which is the income upon which the other state’s tax is imposed, and the denominator of which is Virginia taxable income.

The Taxpayer would be eligible for credit for income tax paid to Maryland because the reciprocal agreement did not apply. The Taxpayer should be aware, however, that the local tax paid on his Maryland resident income tax return is not eligible for the credit. See PD. 21-121 (9/7/2021).

CONCLUSION

After carefully reviewing all of the available evidence, I find that the Taxpayer has failed to carry his burden to prove he intended to change his domicile. Accordingly, he remained taxable as a domiciliary resident of Virginia for the 2017 through 2019 taxable years.

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 his Virginia income tax liability, which may include a credit for tax paid to Maryland. Therefore, the Taxpayer should file 2017, 2018, and 2019 Virginia resident income tax returns to more accurately reflect his 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 and collection action may resume.

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 (804) *****.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/4407.B