02-151 | Virginia Tax

Tax Type

Individual Income Tax

Description

Domicile, part-year resident

Topic

Residency

Date Issued

12-10-2002

December 10, 2002

Re: § 58.1-1821 Application: Individual Income Tax

Dear *****:

This will reply to your letter in which you seek correction of the Virginia individual
income tax assessment issued to your client, ***** (the "Taxpayer"), for the 1999 taxable year.

FACTS

The Taxpayer was the CEO of a corporation ("Corporation A") located in another state ("State A"). In July 1998, the Taxpayer moved to Virginia to open a branch office for Corporation A. He was listed as a Virginia resident on his W-2 issued by Corporation A. He resided at his father's house and registered his car in Virginia. The Taxpayer maintained a State A driver's license, but sold his home located in State A in December 1998. In February 1999, the other shareholders of Corporation A purchased all of the Taxpayer's stock in Corporation A. As part of the agreement to sell his ownership interest, the Taxpayer entered into a noncompetition agreement with Corporation A. In March 1999, the Taxpayer began work for another corporation ("Corporation B") while residing in Virginia. The Taxpayer moved to another state ("State B"). In August 1998, the Taxpayer purchased a home and registered to vote in State B.

The Taxpayer filed a nonresident Virginia individual income tax return for the 1999 taxable year. Under audit, the department determined that the Taxpayer was a domiciliary resident of Virginia in 1999 and assessed additional tax and interest. You contend that the Taxpayer was not subject to Virginia income tax for 1999 because he never established a Virginia domicile. In the alternative, you contend that if the Taxpayer was domiciled in Virginia for a portion of the 1999 taxable year, compensation from Corporation B and from the noncompetition agreement should be prorated for the portion of time that the Taxpayer resided in Virginia.

DETERMINATION

Domicile

Two classes of residents, a domiciliary resident and an actual resident, are set forth in Code of Virginia § 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 actually reside elsewhere. For a person to change domiciliary residency to another state, 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 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, sites 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 residency.

The department concedes that it is difficult to know whether a taxpayer intends to return to Virginia. The department determines a taxpayer's intent through the information provided. The taxpayer has the burden of proving that he or she has abandoned his or her Virginia domicile. If the information is inadequate to meet his or her burden, the Commissioner must conclude that he or she intended to remain indefinitely in Virginia.

The evidence demonstrates that when the Taxpayer moved to Virginia to open Corporation A's branch office, his intent was to remain in Virginia. Although he rented a home on a month-to-month basis, no evidence was provided to indicate that the Taxpayer intended to remain in Virginia on a temporary basis or that he was to leave Virginia after establishing the branch office. Based on the facts presented, the Taxpayer established a domiciliary residence in Virginia in July 1998.

The Taxpayer contends that he changed his became a State B domiciliary resident in February of 1999. He has provided a copy of his credit card statement for February 1999, which indicates that he made purchases in State A and State B as well as Virginia for that month. This evidence is insufficient to demonstrate that he Taxpayer changed his domiciliary residence from Virginia to State B in February 1999. However, the evidence further demonstrates that the Taxpayer purchased a home and registered to vote in State B in August of 1999. Such evidence demonstrates that the Taxpayer abandoned his Virginia domicile when he established domicile in State B in August 1999. As such, the Taxpayer would be required to file a Virginia part-year resident return for both 1998 and 1999.

Proration of Wages and Noncompetition Pay

The Taxpayer received wages, dividends, interest and capital gain income during the 1999 taxable year. He also received income from a noncompetition agreement. There is a presumption that the wages, interest and dividends were received equally through the taxable year. However, the Taxpayer's Federal Schedule D indicates when the Taxpayer's capital gains and losses should be attributed. In addition, the noncompetition agreement required flat monthly payments be made to the Taxpayer from March through October 1999. As a part-year resident, the income that the Taxpayer received from his agreement after July of 1999 will be attributed to State B.

Accordingly, the department's assessment of tax and interest for the 1999 taxable year will be adjusted according to the enclosed schedules. The Taxpayers should send the amount due to the Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 1880, Richmond, Virginia 23218-1880, Attn: *****. Payment must be received within 30 days from the date of this letter to avoid the accrual of additional interest.

The Code of Virginia section cited and other reference documents are available online in the Tax Policy Library section of the department's web site located at www.tax.state.va.us. If you have any further questions, you may contact ***** at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/41252B

Rulings of the Tax Commissioner