10-148 | Virginia Tax

Tax Type

Individual Income Tax

Description

Taxpayers were domiciliary residents of Virginia/ Assessments

Topic

Domicile

Persons Subject to Tax

Records/Returns/Payments

Date Issued

07-26-2010

July 26, 2010

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 taxable year ended December 31, 2006.

FACTS

The Taxpayers, a husband and wife, were residents of Virginia when they purchased a home in ***** (State A) in October 2004. The Taxpayers continued to own their house in Virginia during the taxable year at issue.

The Taxpayers possessed Virginia driver's licenses during the 2006 taxable year. The husband surrendered his Virginia driver's license and obtained a State A driver's license in April 2007. The wife renewed her license in March 2006. During the taxable years at issue, the husband maintained one vehicle registered in Virginia and several vehicles registered in State A. The Taxpayers both maintained their Virginia voter registration during the taxable year at issue. The Taxpayers' children were enrolled in State A schools and the Taxpayers were members of a State A country club.

In 2006, the husband spent 76 days in Virginia, some of which were spent working at a Virginia corporation (Corporation A). The wife spent a few days in Virginia. The Taxpayers filed a nonresident Virginia income tax return that attributed all the husband's salary from the Virginia corporation to State A.

Under audit, the Department determined the Taxpayers were domiciliary residents of Virginia for the taxable year at issue and assessed additional tax and interest. The Taxpayers contend that they successfully changed their domicile to State A.

DETERMINATION

Residence

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 an individual or the place to which he intends to return even though he may actually reside elsewhere. For an individual to change his domiciliary residency to another state, 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 individual 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, maintains a place of abode within Virginia, whether domiciled in Virginia or not.

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 indicating a change in domicile from Virginia. The Taxpayers acquired residential property in State A in October, 2004. The husband registered and maintained several vehicles in State A. He also maintained a private airplane in State A that was registered to the Taxpayers' State A address. In addition, the Taxpayers made a declaration of their nonresident status by reporting their Virginia source income on a Virginia nonresident income tax return prior to the tax years in question. The Taxpayers joined social organizations in State A and provided documentation that verified that the number of days that they spent in State A exceeded the days they spent in Virginia. The Taxpayers' children attended State A schools.

The Taxpayers also performed actions that are consistent with maintaining a Virginia domicile. The Taxpayers both maintained Virginia driver's licenses during the taxable year at issue, although the husband surrendered his Virginia license in April 2007. The wife, however, renewed her driver's license in March 2006. They have both maintained their Virginia voting registrations. The Taxpayers maintained a home and had one vehicle registered in Virginia. Although the Taxpayers indicated their intent to sell the house in Virginia, the motor vehicle remained available to them when they were in Virginia.

Virginia Code § 46.2-323.1 states, "No driver's license . . . shall be issued to any person who is not a Virginia resident." This section also states that every person applying for a driver's license must execute and furnish to the Commissioner of the Department of Motor Vehicles a statement that certifies that the applicant is a Virginia resident. The Department has also found that an individual may successfully establish a domicile outside Virginia even if they retain a driver's license. See Public Document (P.D.) 00-151 (8/18/2000). However, obtaining or renewing a Virginia driver's license is considered to be a strong indicator of intent to retain domiciliary residence in Virginia. See P.D. 02-149 (12/09/2002). In this case, the husband did not renew his Virginia driver's license since moving to State A and, in fact surrendered his Virginia license in 2007. The wife, however, renewed her driver's license during the taxable year at issue.

The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is accorded a greater weight. While some steps were not completed in 2006, it is my determination that the husband did meet his burden of proving that they intended to acquire another domicile with the intention to remain there permanently or indefinitely in 2006. Further, even though the wife renewed her Virginia driver's license in 2006, the preponderance of evidence shows that she intended to change her domicile to State A.

While the Department concedes the Taxpayers' State A residency for the taxable year at issue, the Taxpayers should be aware that continuing connections with Virginia, such as the wife's possession of a Virginia driver's license, will likely continue to result in future contacts by the Department with respect to the situs of the Taxpayers' domicile. As in any determination, a change in the facts and circumstances could result in a change in the Department's determination in subsequent taxable years.

Nonresident Salary

During the course of the Department's review, the husband acknowledged he worked on behalf of Corporation A in Virginia during the taxable year at issue. He did not, however, attribute any of the salary he earned to Virginia on the nonresident return.

Individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. 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."

Typically, the factor that most equitably determines the apportionment of salaries and wages is the ratio of the number of days services were performed in Virginia to the number of days services were performed elsewhere. See P.D. 94-219 (7/13/1994). The Department has previously ruled that a nonresident who works in Virginia may apportion his or her salary to Virginia using a ratio of (1) the number of days or portion thereof spent in Virginia performing duties for his or her employer, divided by (2) the number of days or portion thereof spent anywhere performing duties for his or her employer. See P.D. 85-134 (6/18/1985).

As a general rule, the Department uses 260 days in the denominator of the ratio for determining wages attributable to Virginia for full-time employees. Taxpayers who claim to have worked more than 260 days during a given taxable year must document that claim. Likewise, taxpayers who worked less than 260 days are limited to using days actually worked in the denominator of the ratio. For part-time employees, semi-retired individuals, and consultants, a ratio of hours worked in Virginia divided by hours worked anywhere may be a better indicator of income from Virginia sources.

Because the husband spent time in Virginia working on behalf of Corporation A, the Taxpayers must file an amended nonresident Virginia individual income tax return for the taxable year ended December 31, 2006 in order to attribute an appropriate amount of the husband's salary as Virginia source income.

The amended return must be sent to the Virginia Department of Taxation, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: ***within 30 days from the date of this letter. The assessment will be adjusted upon receipt of the amended return.

For future taxable years, the husband should document the time he worked in Virginia and elsewhere. Such documentation should be in the form of a log, calendar, or schedule providing sufficient details to determine the days the husband worked, the number of hours worked each day, and the number of days worked in Virginia.

The Code of Virginia sections and public documents 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 Department's Office of Tax Policy, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Linda Foster
        Deputy Tax Commissioner

AR/1-418687064.B

Rulings of the Tax Commissioner