December 29, 2014
Re: Request for Ruling: Individual Income Tax
Dear *****:
This will reply to your letter in which you request a ruling concerning programs offered by the Virginia College Savings Plan ("VCSP"). I apologize for the delay in responding to your request.
FACTS
The VCSP has established a number of college savings options, including the Virginia 529 inVEST, Virginia 529 prePAID, CollegeWealth and CollegeAmerica programs. Each program is a qualified tuition program for purposes of Internal Revenue Code (IRC) § 529.
The Virginia 529 prePAID program, formerly known as the Virginia Prepaid Education Program (VPEP), allows individuals to prepay the cost of future in-state undergraduate Virginia public college or university tuition and mandatory fees. Benefits are also available for Virginia private and out-of-state schools but the payouts may not cover the full costs. Either the account owner or beneficiary, however, must be a Virginia resident at the time the account is opened.
Virginia 529 inVEST, formerly known as the Virginia Education Savings Trust (VEST), is available directly from the VCSP and offers a variety of investment options. Other programs include CollegeWealth, which offers special, high-yield savings accounts through VCSP's partnership with several commercial banks, and CollegeAmerica, which allows individuals to create savings trust accounts through VCSP's partnership with a mutual fund company. Unlike the Virginia 529 prePAID program, each of these programs is a national program open to all citizens and legal residents of the United States, with no state residency requirements. You request a ruling on the questions stated below.
RULING
Are the Virginia 529 in VEST, CollegeWealth and CollegeAmerica programs open to both Virginia residents (whether actual or domiciliary) and nonresidents? In addition, are nonresidents excluded from participating in the Virginia 529 prePAID program?
The program descriptions for the Virginia 529 inVEST, CollegeWealth and CollegeAmerica programs state that they are open to all citizens and legal residents of the United States, with no state residency requirements. Likewise, the Virginia 529 prePAID program requires either the account owner or beneficiary to be a Virginia resident at the time the account is opened. Because the Department does not administer any of these programs, you should contact the VCSP for assistance with any questions you have concerning program eligibility.
May a nonresident who has Virginia source income deduct contributions to a Virginia 529 inVEST, CollegeWealth or CollegeAmerica account on his Virginia income tax return?
Pursuant to Va. Code § 58.1-325, a nonresident individual who has income from carrying on a business, trade, profession, or occupation within Virginia is required to file a Virginia individual income tax return, unless the individual meets the filing exception described in Va. Code § 58.1-321. The Virginia taxable income of a nonresident is computed by multiplying his Virginia taxable income (computed as if he were a resident) by the ratio of his net income, gain, loss, and deductions from Virginia sources to his net income, gain, loss, and deduction from all sources. Under Va. Code § 58.1-302, "income and deductions from Virginia sources" includes income from "a business, trade, profession or occupation carried on in Virginia." In addition, Va. Code § 58.1-341 requires every nonresident individual having Virginia taxable income to file an income tax return.
Virginia starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). The FAGI of a Virginia resident is then increased and decreased by Virginia modifications under Va. Code § 58.1-322. Specifically, Va. Code § 58.1-322 D 7 a allows a deduction, subject to certain limitations, 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 VCSP. Virginia Code § 23-38.75 defines "contributor" as "a person who contributes money to a savings trust account established pursuant to this chapter on behalf of a qualified beneficiary and who is listed as the owner of the savings trust account."
Accounts established under the Virginia 529 inVEST, CollegeWealth or CollegeAmerica programs qualify as savings trust accounts. In computing his Virginia taxable income as if he were a resident, therefore, a nonresident taxpayer who qualifies as a contributor would be permitted to deduct contributions to such accounts, subject to the limitations described in Va. Code § 58.1-322 D 7 a on computing his Virginia taxable income.
Is the act of opening a Virginia 529 inVEST, CollegeWealth or CollegeAmerica account a factor indicating an intent to establish a Virginia domicile? Does an individual establish a Virginia domicile merely by opening such an account?
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 reside elsewhere. For a person to change domiciliary residency to another state or country, 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.
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, situs of real or 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 the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.
Because the Virginia 529 InVEST, CollegeWealth or CollegeAmerica programs are open to all citizens and legal residents of the United States regardless of state residency, the act of establishing such an account would likely be of limited value as evidence of intent in most cases. In the case of a Virginia 529 prePAID account, however, an account owner's declaration of Virginia residency would be a strong indicator of intent to establish or retain a Virginia domicile.
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5683966113.M