Tax Type
Individual Income Tax
Description
Failure to show abandonment of state domicile with the intent not to return
Topic
Domicile
Federal Conformity
Date Issued
06-04-2010
June 4, 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 assessments issued to ***** (the "Taxpayer") for the taxable year ended December 31, 2004 and 2005. I apologize for the delay in the Department's response.
FACTS
The Taxpayer and her spouse were originally residents of ***** (State A). In 1999, the spouse, who was active duty military, was transferred to Virginia. The Taxpayer moved to Virginia and obtained a Virginia driver's license in 2000. The couple purchased a residence in Virginia in August 2002. The couple maintained motor vehicle registrations in State A. The Taxpayer also maintained her voter registration in State A.
In February 2004, the spouse was transferred to ***** (State B). The Taxpayer and her spouse resided in a rented room in a single family home in State B that was owned by friends. They maintained ownership of the Virginia residence. The Taxpayer and her spouse's sons attended a Virginia community college, but paid out-of-state tuition.
In mid-2006, the Taxpayer's spouse retired from the military and the Taxpayer and her spouse moved back to their Virginia residence. The Taxpayer renewed her Virginia driver's license in March 2006 and registered to vote in Virginia in October 2006.
The Taxpayer's primary source of income resulted from a home-based sales business. The Taxpayer did not file a Virginia individual income tax return for the 2004 or 2005 taxable year. Under audit, the Department determined the Taxpayer was a domiciliary resident of Virginia and issued individual income tax assessments to the Taxpayer for the 2004 and 2005 taxable years. The Taxpayer contests the assessments, contending she was not a domiciliary resident of Virginia for the taxable years at issue.
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 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 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 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 Commissioner must conclude that the taxpayer did intend to return to his or her original domicile.
In the case of individuals who engage in temporary work assignments overseas, the Department has ruled that such activities indicate an intent to abandon Virginia domicile is lacking. See Public Document (P.D.) 86-219 (11/3/1986), P.D. 96-207 (8/26/1996), and P.D. 02-33 (3/13/2002). The Soldiers and Sailors Civil Relief Act of 1940 (the "Act") (50 U.S.C. § 574) provides that military and naval personnel do not abandon their legal domicile solely by complying with military orders that station them in a different state or country whether permanently or temporarily.
The Act does not apply to the spouses of military and naval personnel for the years in question. In P.D. 96-293 (10/18/1996), the Department found that a military spouse was considered an actual resident of Virginia, subject to Virginia individual income taxation as a resident, because he resided in Virginia for more than 183 days during the taxable year. Further, the Department has ruled that residency status of a taxpayer requires analysis separate from their military spouse. See P.D. 05-92 (6/9/2005) and P.D. 05-150 (9/8/2005).
Thus, the Department must consider all the attendant circumstances with regard to a military spouse in order to determine the domiciliary residence of such individual. When the spouse moves to follow military personnel to a new duty station they will generally abandon their former permanent place of abode, leave their employer, take or abandon personal property, and move their family. They establish a new permanent place of abode near the new duty station, enroll children in school, and seek employment of an indeterminate duration. They generally comply with jurisdictional authorities with regard to driving permits, vehicle registrations, voting registrations, and education requirements. They also change social, charitable, and church associations. Moreover, they move with no assurance that they may move back to a former duty station. Under the circumstances, it seems reasonable to conclude that a military spouse will establish domicile in Virginia when following military personnel to Virginia and abandon Virginia domicile when they follow them to the next duty station. To do otherwise would require the Department investigate whether a military spouse had established domicile and abandoned domicile at every duty station prior to coming to Virginia.
The Taxpayer contends that she was a resident of State A prior to 2004. She avers that she was not a Virginia resident in 2004 and 2005 because she resided with her spouse in State B. She argues that she did not establish a Virginia domicile until 2006, when they moved back to Virginia upon her spouse's retirement from the military.
The Taxpayer, however, performed a number of actions consistent with abandoning her State A domicile and acquiring a Virginia domicile prior to 2004. The Taxpayer acquired a Virginia driver's license in April 2000, which she renewed in March 2006. The Taxpayer and her spouse purchased a residence in Virginia in 2002. Their college aged children resided in the Virginia home and attended Virginia state schools. The Taxpayer operated a home-based sales business from her Virginia home. Although the Taxpayer maintained her voter and vehicle registration in State A, the preponderance of evidence clearly shows that she changed her domicile to Virginia in 2000.
When her spouse was transferred to a duty station in State B, the Taxpayer performed a number of actions consistent with being the spouse of a member of the armed forces on active duty. She established a place of abode in State B where she operated her home based sales business. The place of abode in this case consisted of a room rented at a friend's house.
While in many situations military spouses never establish a Virginia domicile because they are merely following their spouses from duty station to duty station, the evidence in the instant case is different from that of the typical military spouse. Typically, when military personnel become stationed outside of Virginia, all real and personal property will be either sold or moved to the new duty station. Virginia driver's licenses and voter registration will be surrendered. The reason is that military personnel and their nonmilitary spouse will not know where they will be stationed once the military personnel's current tour is complete. As such, there is no reason to retain any connection to Virginia because it is unknown whether the military personnel will be stationed back in Virginia.
In February 2004, when the spouse was transferred to a new duty station in State B, the Taxpayer established a permanent place of abode in, and moved her business to State B. The Taxpayer contends that she had no Virginia source income in 2004 and 2005 because her home-based business generated its income in State B during those years.
The Taxpayer performed actions indicative of maintaining a Virginia domicile. She maintained a permanent place of abode in Virginia. The Taxpayer's college aged children continued to live in the Virginia residence. The Taxpayer renewed her Virginia driver's license. In addition, the Taxpayer returned to Virginia with her spouse in 2006 when he retired from the military and established residency in Virginia.
Further, the evidence indicates the Taxpayer knew that she would be returning to Virginia after her spouse's service in State B was completed. At the conclusion of his service in State B, her spouse retired from military service. Because they were in State B for a little more than two years, it is likely that they knew they would be returning to Virginia. This is further evidenced by the fact that the Taxpayer kept her Virginia driver's license instead of obtaining a State B license.
After considering all of the facts and circumstances of this particular case, I find that the evidence demonstrates that the Taxpayer failed to show she abandoned her Virginia domicile with the intent not to return.
A review of the Taxpayer's federal return information indicates that the assessments are substantially overstated. For the 2004 taxable year, the Department's auditor failed to consider valid business deductions from the Taxpayer's home-based sales business. The assessment for the 2005 taxable year was computed based on the federal adjusted gross income (FAGI) of both the Taxpayer and her spouse.
Pursuant to Va. Code § 58.1-321, no tax was imposed upon any individuals whose Virginia adjusted gross income (VAGI) for the 2004 taxable year was less than $5,000. VAGI is an individual's FAGI plus the additions set forth in Va. Code § 58.1-322 B, less the subtractions set forth in Va. Code § 58.1-322 C. For the 2004 taxable year, the Taxpayer's VAGI was less than $5,000. Accordingly, the Taxpayer was not required to file an individual income tax return for the 2004 taxable year, and the assessment has been abated in full.
In addition to overstating income, the computation for 2005 also failed to provide for the Taxpayer's share of itemized deductions or personal exemptions for her children. As such, the tax liability will be adjusted as shown on the enclosed schedule. A revised assessment for the 2005 taxable year including interest will be issued shortly.
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 about this determination, you may contact ***** in the Office of Tax Policy, 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/1-3190699609.B
Rulings of the Tax Commissioner