Tax Type
Individual Income Tax
Description
Taxpayer did not establish a Virginia and not subject to any past tax liability
Topic
Domicile
Persons Subject to Tax
Date Issued
04-06-2006
April 6, 2006
Re: Request for Ruling: Individual Income Tax
Dear ********:
This will reply to your letter in which you (the "Taxpayer") seek a ruling regarding your pending retirement from the military and potential move to Virginia. Specifically, you ask if contacts established with Virginia in prior years will subject you to income tax liability for those years.
FACTS
The Taxpayer entered the military in 1979 when he was a resident of ***** ("State A"). The Taxpayer has maintained State A as his home of record throughout his military career. The Taxpayer has maintained his driver's license in State A and is registered to vote in State A.
The Taxpayer was stationed in Virginia from 1988 through 1991. During that assignment, he bought and sold a house in Virginia. He also bought a car with a Virginia title that he subsequently had retitled in State A. The Taxpayer then did two tours of duty outside of Virginia. During the second tour, the Taxpayer started a business in State A. In 1998, the Taxpayer was again stationed in Virginia.
The Taxpayer moved his business to Virginia in 1998 and obtained a business license to operate in a Virginia locality. The Taxpayer filed Virginia nonresident income tax returns to report the income from the business. In 1999, the Taxpayer purchased land in a Virginia locality and used it regularly for hunting and camping with his children.
The Taxpayer purchased a Virginia Prepaid Tuition Plan for his eldest child. The child currently attends an out-of-state college and draws from the Virginia plan. His three other children do not have prepaid tuition plans.
In 2001, in anticipation of a military transfer away from Virginia, the Taxpayer incorporated the business as a Virginia Sub-S corporation and contracted with a local individual to keep it operating. Thereafter, the Taxpayer filed Virginia S corporation returns for the business. The business continues today, although orders are being filled by a company in another state. A Virginia resident serves as the corporate representative in the Commonwealth.
Since leaving Virginia in 2001, the Taxpayer has been stationed in two foreign countries. The Taxpayer is now contemplating retiring to Virginia. The Taxpayer is concerned that his ties to Virginia could prompt the Department to consider him as a domiciliary resident of Virginia. Accordingly, the Taxpayer is requesting a ruling to clarify his tax status.
RULING
The Soldiers' and Sailors' Civil Relief Act of 1940 (50 U.S.C.A. App. § 574) provides that military and naval personnel do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different state or country. The Act, however, does not preclude the possibility that military personnel may acquire a new legal domicile in the state where they are stationed, and thus subject themselves to taxation by that state as if they were a domiciliary resident. In order for the change of domicile to occur, there must be an abandonment of the old domicile and the acquisition of a new one. This change must be exhibited by an individual's intent and conduct. In addition, Va. Code § 58.1-321 B provides that members of the armed forces that are stationed in Virginia, who are not domiciled in Virginia, are not subject to income tax on compensation received from their military service.
The Taxpayer was stationed in Virginia by the United States military in 1988 through 1991 and again in 1998 through 2001. The facts as presented in your ruling request indicate that the Taxpayer did not establish a Virginia domicile while stationed in the Commonwealth.
I would note that either the purchaser or the beneficiary is required to be a resident of Virginia in order to purchase a Virginia Prepaid Education Plan contract. Under an exception to that policy, military personnel stationed in Virginia are permitted to purchase plans for their children.
Income of Nonresident
Although the Taxpayer was not a resident of Virginia during the taxable years addressed above, he was subject to Virginia income tax as a nonresident on his income from Virginia sources. The Virginia taxable income of a nonresident is defined under Va. Code § 58.1-325 as "an amount bearing the same proportion to his Virginia taxable income, computed as though he were a resident, as the net amount of his income, gain, loss and deductions from Virginia sources bears to the net amount of his income, gain, loss and deductions from all sources."
The Taxpayer filed nonresident returns that reported the income from his Virginia business for the years that it operated in Virginia. As such, the Taxpayer complied with Virginia's requirements for nonresidents who have Virginia source income.
CONCLUSION
Based on the facts provided, the Taxpayer did not establish a Virginia domicile while stationed in Virginia. Furthermore, the Taxpayer properly complied with Virginia's tax laws as a nonresident. Accordingly, the Taxpayer's contacts with Virginia do not subject him to any past tax liability.
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections cited, along with other reference documents, 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 about this ruling, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Kenneth W. Thorson
Tax Commissioner
-
-
-
-
-
-
-
-
AR/56560B
Rulings of the Tax Commissioner