Tax Type
Individual Income Tax
Description
Contributions to a VEST account grandchildren/ Residency/Documentation
Topic
Federal Conformity
Filing Status
Records/Returns/Payments
Residency
Date Issued
06-04-2010
June 4, 201'0
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you request correction of the individual income tax assessments issued to ***** (the "Taxpayers") for taxable years 2006 and 2007.
FACTS
The Taxpayers, a husband and a wife, moved to Virginia in 2003 and filed Virginia income tax returns as Virginia residents. The Department audited the Taxpayers' returns for the 2006 and 2007 taxable years and made several adjustments. The auditor disallowed the Taxpayers' subtractions for both taxable years for pension distributions and disallowed the deduction for contributions to a Virginia savings trust account (VEST) in 2007. Assessments were issued for additional tax and interest.
The Taxpayers contest the assessments. They claim that they never abandoned their domicile in ***** (State A) in 2003. Further, they claim that contributions to the pension plans for which they claimed the subtraction were taxed in ***** and *****. In addition, they assert that they made contributions to a VEST account for each of their three grandchildren and, therefore, are entitled to a $6,000 deduction in accordance with Va. Code § 58.1-322 D 7 a. They also claim the wife is eligible for the Virginia age deduction. Finally, the Taxpayers believe the Department is prohibited from accruing interest on the assessments while their appeal is pending.
DETERMINATION
Domicile
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. 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 chanced 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 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.
The Taxpayers claim that they never abandoned their domicile in State A, spending the majority of their time there in 2006 and 2007. The evidence appears to contradict this assertion. According to the information provided, the Taxpayers rented a place of abode in State A during the taxable years at issue. They gave up their State A driver's licenses and voter registrations in 2003 and owned no motor vehicles registered in State A during the taxable years at issue. Further, while the Taxpayers spent less than 183 days in Virginia in 2006, their records show that they spent more time in Virginia than any other state or country.
The Taxpayers performed a number of activities consistent with establishing domicile in Virginia. They purchased a permanent place of abode in 2001 where they kept substantial personal property, including a boat and a camping trailer. They maintained Virginia registrations for two motor vehicles during the taxable years at issue. They obtained Virginia driver's licenses in 2003. The wife renewed her license in 2006, and the husband renewed his license in 2008. They also registered to vote in Virginia in 2003. Further, they filed income tax returns as residents of Virginia.
Based on the information provided, I find sufficient evidence to conclude that the Taxpayers abandoned their State A domicile and established domicile in Virginia in 2003. Further, there is no evidence that the Taxpayers took any steps to abandon their Virginia domicile during 2006 or 2007.
Virginia College Savings Plan
Virginia Code § 58.1-322 D 7 a allows a deduction to the purchaser or contributor for the amount paid or contributed during the taxable year for a prepaid tuition contract or savings trust account entered into with the Virginia College Savings Plan. Generally, the amount deducted on any individual income tax return in any taxable year is limited to $4,000 per prepaid tuition contract or savings trust account.
The Taxpayers have provided evidence that they are the purchasers for three contracts for the 2007 year. Each contract has a contribution total of $2,000. One contract was purchased in the name of the husband and the other two in the name of the wife. Because the contribution amounts do not exceed $4,000 for each purchaser, the Taxpayers are entitled to claim a $6,000 deduction from their Virginia adjusted gross income ($4,000 to the wife and $2,000 to the husband). See Public Document (P.D.) 00-216 (12/7/2000). The assessment will be adjusted to reflect the deduction.
Retirement Income Previously Taxed by Another State
The Taxpayer contends that the income received during the 2006 and 2007 taxable years is retirement income, and the employer made an error in reporting withholding to Virginia. The Taxpayer states the employer refused to correct the income reporting statement.
Virginia Code § 58.1-322 C 19 provides a subtraction for:
-
- any income received during the taxable year derived from a qualified pension, profit-sharing, or stock bonus plan as described by § 401 of the Internal Revenue Code, an individual retirement account or annuity established under § 408 of the Internal Revenue Code, a deferred compensation plan as defined by § 457 of the Internal Revenue Code, or any federal government retirement program, the contributions to which were deductible from the taxpayer's federal adjusted gross income, but only to the extent the contributions to such plan or program were subject to taxation under the income tax in another state.
In this case, the Taxpayers did not report any pension income on the federal income tax return. In addition, the Taxpayers did not provide evidence that they were required to add pension contributions to their federal adjusted gross income when calculating individual income tax for another state. Accordingly, I find that the auditor's adjustment is correct.
Age Deduction
The wife contends that she should be allowed a $6,000 age deduction regardless of income, because she reached age 65 during the 2006 taxable year.
Virginia Code § 58.1-322 D 5 d provides a deduction of $6,000 for individuals born on or between January 2, 1941 and January 1, 1942. The wife met the age requirement, but this subtraction expired January 1, 2006 and cannot be claimed against taxable income for the 2006 taxable year.
Virginia Code § 58.1-322 D 5 e allows a $12,000 deduction for individuals who have attained the age of 65 for taxable years beginning on and after January 1, 2004. This deduction is reduced $1 for every $1 that the taxpayer's federal adjusted gross income (FAGI) exceeds $75,000 (married filing joint return). Based on the Taxpayers' FAGI, they do not qualify for this deduction.
Interest
Virginia Code § 58.1-308 states that if the amount of income tax computed by the Department is greater than the amount assessed (e.g., as reported on a tax return), "interest shall be added to the amount of the deficiency at a rate determined in accordance with § 58.1-15, from the time the return was required by law to be filed until paid." Virginia Code § 58.1-1812, addressing the assessment of omitted taxes by the Department, also requires interest to be charged on the deficiency.
While Va. Code § 58.1-1821 requires collection action to be suspended while a taxpayer's appeal is pending, it does not prohibit the accrual of interest. As noted above, Va. Code § 58.1-308 requires the accrual of interest until the outstanding balance is paid. To avoid the accrual of additional interest, the taxpayer may choose to make full payment of the assessment when the appeal is filed. In fact, the Taxpayers were informed about this requirement when receipt of their appeal was acknowledged by the Department in a letter dated October 28, 2009.
CONCLUSION
The audit will be returned to the auditor, and the assessment will be adjusted in accordance with this determination. After the adjustments are made, an updated bill with accrued interest will be mailed to the Taxpayers. The bill must be paid within 30 days of the bill date to avoid the accrual of additional interest.
The Code of Virginia sections and public document 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 Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
-
-
-
-
-
-
AR/1-3915314581.D
Rulings of the Tax Commissioner