Tax Type
Individual Income Tax
Description
Retiree whose income is primarily of disability, domiciliary resident of Virginia
Topic
Appropriateness of Audit Methodology
Basis of Tax
Residency
Date Issued
08-18-2004
August 18, 2004
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 assessments issued to you (the "Taxpayer") for the 1999, 2000 and 2001 taxable years. I apologize for the delay in the Department's response.
FACTS
The Taxpayer is a retiree whose income consists primarily of disability income from another state ("State A"). The Taxpayer states that since 1998, he has been staying at a friend's home in State A for two to three days per week. The Taxpayer filed 1999, 2000 and 2001 State A income tax returns as a resident.
The Taxpayer purchased and moved to a home in Virginia in 1999. Around the same time, the Taxpayer surrendered his State A driver's license and obtained a Virginia license. The Taxpayer titled and registered three vehicles in Virginia since moving to Virginia; two of which he still owns. The Taxpayer's financial statements, including his bank statements, were sent to his home in Virginia. The Taxpayer initially stated that he spends approximately 120 days per year in his home in Virginia, approximately 150 to 185 days per year in State A and approximately 30 to 60 days per year in another state. The estimate of time spent in Virginia was later reduced to one month in the spring and approximately two months in the fall and winter.
Under audit, the Department classified the Taxpayer as a domiciliary resident of Virginia, beginning with the 1999 taxable year, and issued assessments based on the information available. The Taxpayer contests the assessments and contends that he was a domiciliary resident of State A during the years at issue. The Taxpayer further contends his disability income is from State A's retirement system and that it is unconstitutional for states to tax that income based upon the decision in James H. Pou Bailey, et.al. v. State of North Carolina et al., 348 N.C. 130, 160, 500 S.E.2d 54, 71 (1998) (hereinafter "Bailey").
DETERMINATION
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. Code § 58.1-302. Domiciliary residence means the permanent place of residence of a taxpayer or the place to which he or she intends to return even though they may actually reside elsewhere. For an individual to change domiciliary residency to another state, that individual must intend to abandon their Virginia domicile with no intention of returning to Virginia. Concurrently, that individual 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 an individual who, for an aggregate of more than 183 days of the taxable year, maintained a 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, an individual 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 as a resident.
In determining domicile, consideration may be given to an 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 an individual's domicile. An individual'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 domiciliary residency.
The Taxpayer performed several actions that are consistent with a change in domicile. The Taxpayer purchased a home in Virginia. He surrendered his State A driver's license and obtained a Virginia driver's license. He also registered his automobiles in Virginia. The Taxpayer has stated that he had his financial statements sent to his address in Virginia because he was considering living at this address permanently.
In addition, there are several actions that indicate the Taxpayer's intent to maintain a State A domicile. The Taxpayer states that he spent more time in State A than in Virginia. He filed State A income tax returns as a resident. The Taxpayer sold his Virginia home in 2002, noting that he returned to State A for health reasons and so that he could spend more time with his grandchildren.
The Department concedes that it is difficult to know whether an individual intends to return to Virginia. The individual has the burden of proving abandonment of his or her Virginia domicile. If the information is inadequate to meet this burden, the Department will conclude that he or she intended to return to Virginia. Based on the information provided, I find that that there is sufficient evidence to show that the Taxpayer obtained a Virginia domicile during 1999.
Concerning your assertion that your disability income is not taxable under Bailey, the ruling in that case is limited to State A. Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meanings as provided in the Internal Revenue Code ("IRC") unless a different meaning is clearly required. For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income ("FAGI"). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322. In the case of the Taxpayer, the disability income received from State A may qualify for a subtraction in determining Virginia taxable income pursuant to § 58.1-322(C)(4a) or (4b).
Based on the information provided, the Taxpayer has not met his burden of proof to show that he established domicile outside Virginia for the years at issue. Accordingly, the assessments for the 1999 through 2001 taxable years are valid and remain due and payable. Inasmuch as those assessments were based on the information available, the Taxpayer should file Virginia income tax returns in order to reflect any allowable adjustments for the taxable years 1999 through 2001. In particular, a part-year resident income tax return should be filed to reflect the date in 1999 when the Taxpayer's domicile moved to Virginia. These returns should be sent to ***** Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, Post Office Box 1880, Richmond, Virginia 23218-1880, within 45 days from the date of this letter.
The Code of Virginia sections cited are enclosed for reference purposes. These and other reference documents are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.state.va.us. Forms and instructions for completing your 1999, 2000 and 2001 income tax returns are also enclosed. If you have any questions regarding this determination, please contact ***** at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/42475E
Rulings of the Tax Commissioner