Tax Type
Individual Income Tax
Description
Domicile
Topic
Persons Subject to Tax
Date Issued
06-09-2005
June 9, 2005
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessment issued to your client, ***** (the "Taxpayer"), for the taxable year ended December 31, 2002.
FACTS
The Taxpayer, a Virginia resident, was a business executive. You represent that in 2001, the Taxpayer began to plan to withdraw from his business interests in Virginia and permanently relocate to ***** ("State A"). Toward this end, he registered one of his vehicles, acquired a driver's license, and registered to vote in State A in December 2001. Also, in December 2001, the Taxpayer registered and resided in a mobile home in State A with another individual. While no documentation has been provided regarding the purchase of the mobile home, you believe the Taxpayer paid approximately 70 percent of the purchase price, and the individual with whom he shared the mobile home paid the remainder and agreed to pay the bulk of the ongoing residential expenses (basic utilities).
In January 2002, the Taxpayer sold the common stock of ***** ("Corporation A") to a leveraged Employee Stock Ownership Plan and a group of top managers in exchange for 100 percent of the stock in ***** ("Corporation B") and other consideration. Other assets, including a townhouse located in Virginia and an automobile registered in Virginia, were parts of the overall business transaction.
Pursuant to an audit, the Department determined that the Taxpayer did not establish domicile in State A until September 2002, when he purchased a home in State A. As a result, the Department issued an assessment for additional tax and interest. The Taxpayer contests the assessment and asserts that he changed his domicile to State A in December 2001.
DETERMINATION
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. Code § 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 domicile.
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 Taxpayer performed several actions that are consistent with a change in domicile in 2001. He registered his car in State A, obtained a State A driver's license and registered to vote in State A. The Taxpayer, along with another individual, also purchased a mobile home in State A, registered it in the Taxpayer's name, and resided in the mobile home beginning in December 2001.
In addition, there are several factors that indicate the Taxpayer's intent to maintain a Virginia domicile. The Taxpayer maintained a residence in Virginia through January 2003. He wholly owned and operated Corporation B, which was based in Virginia. Finally, the Taxpayer was insured to drive the car owned by Corporation B that was located in Virginia. These factors, however, are mitigated by additional information provided by the Taxpayer concerning his continued connections with Virginia after 2001. The Virginia residence was renovated after he moved Florida, thus delaying the time that the house could be put on the market. In regard to his business connections in Virginia, the Taxpayer remotely managed Corporation B, a Virginia Internet business, from State A. Corporation B disposed of the automobile in late 2002.
The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. In this case, the evidence indicates that the Taxpayer took steps to establish his domicile in State A in December 2001. The evidence also shows that the Taxpayer concurrently took steps to abandon his Virginia domicile. While some steps were not completed by the end of 2001 (e.g., the sale of the Virginia residence in January 2003), it is my opinion that the Taxpayer has met his burden of proving that he intended to acquire another domicile with the intention to remain there permanently or indefinitely in December 2001. Accordingly, the assessment for the 2002 taxable year has been abated.
The Code of Virginia sections cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Kenneth W. Thorson
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- Tax Commissioner
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AR/54291B
Rulings of the Tax Commissioner