Tax Type
Individual Income Tax
Description
Taxpayers met burden of proving they intended to acquire domicile in State A
Topic
Domicile
Date Issued
10-17-2006
October 17, 2006
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 ***** (the "Taxpayers") for the 2002 taxable year.
FACTS
The Taxpayers, a husband and wife, were residents of Virginia. They owned several businesses that were located in Virginia. In August 2002, they purchased and moved into a home in ***** ("State A"). Upon moving into their State A home, the Taxpayers acquired State A driver's licenses and registered to vote. All vehicles that were used by the Taxpayers for personal use were owned by the Taxpayers' Virginia businesses. Upon moving to State A, the Taxpayers performed extensive renovations on their new home.
In November of 2002, the Taxpayers executed a contract to purchase property in Virginia. The settlement on this property closed in January of 2003. The property included a main house that had been unoccupied for 3 ½ years and a smaller house that was being rented. Also in November 2002, the Taxpayers' original Virginia residence was listed for sale. It was sold in October 2003. Subsequently, the Taxpayers sold their State A residence and moved into the main house on the new Virginia property in September 2004.
The Taxpayers filed a nonresident Virginia individual income tax return for the 2002 taxable year. On that return, the Taxpayers sourced to State A the capital gain from the sale of the Taxpayers' stock in their construction business. The Department audited the Taxpayers and issued an assessment for Virginia income tax and interest on the basis that the Taxpayers failed to abandon their Virginia domicile for the 2002 taxable year. The Taxpayers contend that they are not liable for Virginia income tax because they were successfully acquired a State A domicile prior to realizing the capital gain from the sale of stock.
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 he or she may actually reside elsewhere. For an individual to change domiciliary residency to another state or country, that individual must intend to abandon his 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 a person 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, 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 his or her initial state of domicile. The Department determines a taxpayer's intent through the information provided. The taxpayer has the burden of proving that he or she has not abandoned his or her initial domicile. If the information is inadequate to meet this burden, the Commissioner must conclude that the taxpayer intended to remain indefinitely in Virginia.
In this case, the Taxpayers performed several actions that are consistent with a change in domicile in 2002. They purchased and moved into a new home in State A and did extensive renovations to their new home. They obtained State A driver's licenses and registered to vote in State A. In addition, they listed their Virginia home for sale.
At the same time, the Taxpayers maintained several connections with Virginia. They continued to own and operate several businesses within Virginia, and the motor vehicles they used were owned by these businesses. The Taxpayers purchased Virginia property, to which they eventually moved, within six months of moving into State A. The Taxpayers have shown, however, that the Virginia property was initially purchased as an investment. The Taxpayers moved back to Virginia only after experiencing problems with their State A home.
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 Taxpayers took steps to establish their domicile in State A by August 15, 2002. The evidence also shows that the Taxpayers concurrently took steps to abandon their Virginia domicile. While some steps were not completed by August 15, 2002, it is my determination that the Taxpayers have met their burden of proving that they intended to acquire another domicile with the intention to remain there permanently or indefinitely by August 15, 2002. Accordingly, the assessment for the 2002 taxable year has been abated.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. 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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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/56467B
Rulings of the Tax Commissioner