11-119 | Virginia Tax

Tax Type

Individual Income Tax

Description

The Servicemembers Civil Relief Act

Topic

Domicile

Persons Subject to Tax

Records/Returns/Payments

Servicemembers Civil Relief Act

Date Issued

06-24-2011

June 24, 2011

Re: § 58.1-1821 Application: Individual Income Tax

Dear *****:

This will reply to your letter in which you appeal the Department's denial of a claim for refund of individual income tax filed by ***** (the "Taxpayer") for the taxable year ended December 31, 2009. I apologize for the delay in the Department's response.

FACTS

The Taxpayer married a service member while they both served in the military in ***** (State A). Both retired from active duty, but the service member joined another branch of the military service in 2003. The Taxpayer retired from his full-time employment in 2002. In July 2006, the service member was assigned to a duty station in ***** (State B), which borders Virginia. The Taxpayer and the service member purchased a condominium, registered to vote, obtained driver's licenses, and registered a motor vehicle in Virginia.

In late 2009, the service member was transferred to a duty station abroad. Before moving, both the Taxpayer and the service member surrendered their Virginia driver's licenses and voter's registrations. They also moved all their personal items to State A. In December 2009, they obtained driver's licenses and registered to vote in State A. The Virginia condominium was sold in January 2010.

The Taxpayer filed a refund claim for nonresident withholding tax for the 2009 taxable year. Under review, the Department disallowed the military spouse exemption because he was a domiciliary resident of Virginia. Further, the Department changed the 2009 Virginia income tax return to a resident return and issued an assessment. The Taxpayer filed an appeal, contending he was an eligible spouse of an active duty service member.

DETERMINATION

Residency of a Military Service Member

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. For a person to change domiciliary residency to another state, that person must intend to abandon his Virginia domicile with no intention of returning to Virginia. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. 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. A Virginia domiciliary resident, therefore, working in other parts of the country or in another country who has not abandoned his Virginia residency continues to be subject to Virginia taxation. Additionally, a person who is not a domiciliary resident of Virginia, but who stays in Virginia for an aggregate of more than 183 days, is also subject to Virginia taxation.

The Servicemembers Civil Relief Act (the "Act"), codified at 50 U.S.C. § 571 et seq., 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 armed forces 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. See United States of America v. Minnesota Department of Revenue, 97 F. Supp. 2d 973 (2000).

In general, the Department will not seek to tax a military service member so long as the member maintains sufficient connections with another state to indicate an intent to maintain domicile there. Such connections would include filing a State of Legal Residence Certificate (Department of Defense Form 2058), obtaining a driver's license, registering to vote and voting in local elections, registering an automobile, and exercising other benefits or obligations of a particular state. As long as a military service member maintains such connections, he would be considered to be a domiciliary resident of the other state even though he works, lives and establishes a place of abode in Virginia.

In this case, the service member obtained a Virginia driver's license, registered to vote in Virginia, and maintained an automobile registered in Virginia. No evidence has been provided to show the service member maintained any other connections with any other state prior to December 2009.

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 and obtained a new domicile. Based on the information provided, the service member established domicile in Virginia in 2006.

Residency of Spouse of Military Service Member

The Act was amended, effective for 2009 taxable year and thereafter, to provide that a spouse can neither lose nor acquire domicile or residence in a state when the spouse is present in the state solely to be with the service member in compliance with the service member's military orders if the residence or domicile is the same for both the service member and spouse. See Tax Bulletin (VTB) 9-10 (11/12/2009) and VTB 10-1 (1/29/2010).

In VTB 10-1, the Department explained that the domicile of a military spouse must be the same as the service member in order to be exempt from Virginia's income tax. The determination of a military spouse's domicile requires analysis of the facts and circumstances. The elements that may be examined include:

- 1. Whether the person claiming exemption is married to a service member who is present in Virginia pursuant to military orders.
  2. The service member's domicile.
  3. The spouse's domicile and the circumstances in which it was established.
  4. The extent to which the spouse has maintained contacts with the domicile.
  5. Whether the spouse has taken any action in Virginia that is inconsistent with maintaining a domicile elsewhere.

The Department concedes that it is difficult to know whether a taxpayer intends to return to Virginia. The Department: determines a taxpayer's intent through the information provided. In this case, the Taxpayer maintained a permanent place of abode, obtained a Virginia driver's license, maintained an automobile registered in Virginia and registered to vote in Virginia.

In this case, the evidence indicates that both the Taxpayer and the service member established domicile in Virginia. Because the Taxpayer was a domiciliary resident of Virginia during 2009, the claim for refund of employer withholding must be denied.

Accordingly, the Department correctly changed the Taxpayer's 2009 filing to a resident return. This change, however, was made based on the information available to the Department. Because the Taxpayer changed his domicile to State A in December 2009, he may have additional information that more accurately reflects his taxable income. It may, therefore, be advisable for the Taxpayer to file an amended 2009 Virginia part-year individual income tax return in order to more accurately reflect his tax liability.

Further, the Department's records do not show that the service member has filed Virginia income tax returns for the 2006 through 2009 taxable years. Because the service member changed her domicile to State A in December 2009, she should file a part-year return for the 2009 taxable year. In addition, the service member may file a joint return with the Taxpayer for the 2006 through 2009 taxable years.

All the requested returns, along with the payment of any tax due, should be submitted to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attention: *****, P.O. Box 27203, Richmond, Virginia 23261-7203 within 30 days of the date of this letter. If the returns are not filed, the assessment issued to the Taxpayer for the 2009 taxable year will be upheld.

The Code of Virginia sections .and tax bulletins cited 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 *****.

- - - - Sincerely,

- - - - Craig M. Burns
        Tax Commissioner

AR/1-4596338213.D

Rulings of the Tax Commissioner