Tax Type
Individual Income Tax
Description
Part-Year Income/Domicile/Nonresident Income
Topic
Persons Subject to Tax
Records/Returns/Payments
Residency
Date Issued
07-28-2010
July 28, 2010
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek abatement of the individual income tax assessment issued to your clients, ***** (the "Taxpayers"), for the 2007 taxable year.
FACTS
The Taxpayers, a husband and a wife, were domiciliary residents of Virginia. In February 2007, they purchased a condominium in ***** (State A). At that time, the Taxpayers retained their house, voter's registrations and driver's licenses in Virginia. The husband surrendered his driver's license in June 2007. The Taxpayers registered a motor vehicle in Virginia in December 2008. They continued to receive financial documents at their house in Virginia. In addition, the husband owned 45% of a Virginia S Corporation (VSC).
The Taxpayers filed a Virginia nonresident individual income tax return for the 2007 taxable year, allocating a portion of the husband's wages to Virginia. Under audit, the Department determined the taxpayers were actual and domiciliary residents of Virginia for the entire 2007 taxable year and issued an assessment to the Taxpayers. The Taxpayers appeal the assessment, contending they moved to State A in February 2007, and they should be taxed only on the income earned when they resided in Virginia.
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 Taxpayers and the place to which he intends to return even though he may actually reside elsewhere. 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.
In order to change from one legal domicile to another legal domicile, there must be (1) actual abandonment of the old domicile, coupled with 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 intent to remain there permanently or indefinitely. The burden of proving that the domicile has been changed lies with the person alleging the change.
Actual Residency
Taxpayers who are domiciliary residents of a state other than Virginia, but spend a significant portion of their time in Virginia (whether for business or personal reasons) should retain records to substantiate where they spent their time. An account book, diary, log, statement of expenses, trip sheet, or similar record should include information as to where the taxpayers spent each day of the taxable year. Absent such record, the Department must rely on available information to make a determination.
The Department's auditor used credit card statements to calculate that the Taxpayers spent more than 183 days in Virginia. The credit card statements include numerous purchases in Virginia made between January 2007 to the end of May 2007. It appears that the auditor counted these as days in Virginia.
Although credit card and debit card statements are helpful in determining how much contact a taxpayer has with Virginia, they may not be reliable in determining the precise number of days a taxpayer spends in Virginia. Reasons for this lack of reliability include vendors that may not transmit transactions on the day they occur, cards with multiple users, and banks that may not record a transaction on the date it occurs. However, when a taxpayer fails to keep sufficient records as to the number of days or portions of days spent in Virginia, these statements can be used to estimate such taxpayer's days spent in Virginia.
In this case, the Taxpayers have provided sufficient evidence to demonstrate that they spent less than 183 days in Virginia and, therefore, were not actual residents during the 2007 taxable year.
Domicile
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 residency. 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 original domicile. If the information is inadequate to meet this burden, the Department must conclude that the taxpayer did intend to return to his or her original domicile.
In this case, the Taxpayers performed a number of actions consistent with obtaining a State A domicile. They purchased a condominium and moved to State A in February 2007. They registered a motor vehicle within State A, and the husband obtained his State A driver's license in June 2007.
At the same time, the Taxpayers maintained a number of connections with Virginia. They continued to own their home in Virginia. The husband owned 45% of VSC, from which he continued to receive salary and income. The wife continued to maintain her Virginia voter's registration and driver's license.
The Taxpayers contend that they kept their house in Virginia because of the extreme market depression in 2007. The house was still on the market at the time of the filing of their appeal. In addition, the information provided indicates that the husband conducted no work in Virginia for VSC after he moved to State A.
With regard to the wife's driver's license, Va. Code § 46.2-323.1 states, "No driver's license . . . shall be issued to any person who is not a Virginia resident." In fact, this section 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. A person providing a false statement is subject to punishment under the laws of the Commonwealth. The Department has found that an individual may successfully establish a domicile outside Virginia even if he retains a Virginia 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 residency in Virginia. See P.D. 02-149 (12/09/2002). In this case, although the wife continued to hold a Virginia driver's license, she did not renew it after moving to State A.
The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. A person's true intention must be determined with reference to all of the facts and circumstances of the particular case. The Department will give more weight to a taxpayer's declared intent attached to an affirmative event for determining the exact date of separation from Virginia. In this case, the Taxpayers obtained a permanent place of abode in State A, in February 2007. They followed that action with activities consistent with abandoning their Virginia domicile and establishing a new domicile in State A.
Part-Year Income
Virginia Code § 58.1-303 B states:
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- Any person who, on or before the last day of the taxable year, changes his place of abode to a place without the Commonwealth with the bona fide intention of continuing actually to abide permanently without Virginia shall be taxable as a resident for only that portion of the taxable year during which he was a resident of Virginia and his personal exemptions shall be reduced to an amount which bears the same ratio to the full exemptions as the number of days during which he was a resident of this Commonwealth bears to 365 days.
Title 23 of the Virginia Administrative Code (VAC) 10-110-40 provides that individuals who are residents of Virginia for only part of a taxable year are taxed as residents for that portion of the year that they reside in Virginia.
In this case, a portion of the husband's salary was earned whine the Taxpayers still resided in Virginia. In addition, a schedule attached to the return shows a number of capital gain and loss transactions occurred during January 2007. The income from these transactions was income generated while the Taxpayers were residents of Virginia. The Taxpayers also reported income from interest, dividends, and other income on their return. The Taxpayers must determine when these items of income were received in order to properly report them on their part-year income tax return.
Further the Taxpayers earned income from a number of pass-through entities, including VSC and a farm. The information provided does not indicate exactly when the income related to these activities was earned. In such cases, the method used should be the one that provides the most accurate reflection of actual income while residing in Virginia. Unless specifically documented otherwise, the Department will consider income from property owned or from a business, trade, profession or occupation to be generated evenly throughout the year. See P.D. 06-99 (9/29/2006).
Nonresident Income
Pursuant to Va. Code § 58.1-303 C, a part-year resident who, as a nonresident of Virginia for any portion of the taxable year, derived income from any property owned or from any business, trade, profession or occupation carried on in Virginia is subject to Virginia income tax as a nonresident as provided under Va. Code § 58.1-325. Because the Taxpayer derived income from VSC after moving to State A, he must file a Virginia nonresident individual income tax return for the portion of the year he did not reside in Virginia and pay tax on any income derived from Virginia sources.
CONCLUSION
Based on this determination, the Taxpayers were residents of Virginia for a portion of the 2007 taxable year and must file a part-year individual income tax return. In addition, in order to properly report their Virginia source income tax after moving to State A, they should file an amended nonresident individual income tax return. Upon receipt of both requested returns, the Department will make the appropriate adjustments to the 2007 assessment. The returns should be filed and payment remitted within 30 days of the date of this letter. Please send the requested returns and payment to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box: 27203, Richmond, Virginia 23261-7203, Attention: *****.
The Code of Virginia section, regulation, and public documents cited, along with other reference materials and forms, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this determination, you may contact ***** at *****.
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- Sincerely,
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- Linda Foster
Deputy Tax Commissioner
- Linda Foster
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AR/1-4100852950.D
Rulings of the Tax Commissioner