Tax Type
Individual Income Tax
Description
Taxpayer failed to abandon his Virginia domicile when he returned to Country A
Topic
Domicile
Persons Subject to Tax
Records/Returns/Payments
Date Issued
01-16-2014
January 16, 2014
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 assessment issued to your client, ***** (the "Taxpayer") for the taxable years ended December 31, 2008 through 2011. I apologize for the delay in responding to your appeal.
FACTS
In 1997, the Taxpayer, formerly a resident of ***** (State A), and his family relocated to the ***** (Country A) when the Taxpayer accepted a position with a company located there. He established a permanent place of abode, obtained a Country A driver's license, was granted permanent residency in Country A and abandoned his domicile in State A. In 1999, the Taxpayer left his Country A employer to become the CEO of another entity located in Country A.
In 1999, the Taxpayer purchased a home in Virginia and applied for and received a Virginia driver's license, which was renewed in 2003 and 2008. In March 2002, while visiting relatives in Virginia, the Taxpayer's son became very ill and his health condition prevented him from returning to Country A. The Taxpayer and his family stayed in their Virginia home until a new home was purchased in 2004. The family's Country A house was sold in 2003. While in Virginia, the Taxpayer formed a pass-through entity structure, which provided consulting services to his former employer in Country A. The Taxpayer also registered to vote in 2003 and maintained a motor vehicle registered in Virginia.
When the Taxpayer's son was released from the physician's care in 2007, the Taxpayer and his family returned to Country A. He was rehired by his Country A employer, established a permanent place of abode, and leased several motor vehicles. One of his sons, however, remained in Virginia to finish high school and attend a Virginia college. In addition, the Taxpayer continued to own the Virginia residence, maintain a motor vehicle registration, and hold a Virginia driver's license.
The Department received information from the Internal Revenue Service (IRS) that the Taxpayer received financial statements at a Virginia address. The Department requested additional information from the Taxpayer to determine if his income was subject to Virginia's income tax. When no response was received, the Department issued assessments for additional tax and interest for the taxable years at issue. The Taxpayer appeals the assessments, contending he was never domiciled in Virginia, and thus his income not subject to Virginia income tax for the 2008 through 2011 taxable years.
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 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, 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 or domicile.
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 Virginia domicile. If the information is inadequate to meet his or her burden, the Tax Commissioner must conclude that he or she intended to remain indefinitely in Virginia.
Virginia Domicile
The Taxpayer took a number of actions indicating an intent to establish his domicile in Virginia beginning in 1999. These actions included establishing a permanent place of abode, registering a motor vehicle, and participating in Virginia elections as a resident.
Under Va. Code § 24.2-101 an individual must be a resident of the precinct in which they offer to vote. This statute requires a resident to have both legal domicile and a place of abode in Virginia. For Virginia voting purposes, domicile is determined by the intention of the individual, supported by an individual's factual circumstances. See State Board of Elections (SBE) Policy 2009-005. Thus, when the Taxpayer registered to vote in Virginia, he was indicating that he had changed his domiciliary residence from Country A to Virginia.
The Taxpayer obtained a Virginia driver's license in 1999, the same year the Taxpayer purchased the first Virginia residence, and renewed the license in October 2003 and again in October 2008. Virginia 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 (DMV) a statement that certifies that the applicant is a Virginia resident. 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).
The Taxpayer formed an S corporation, incorporated in ***** (State B) in 2003. Together, the Taxpayer and the S corporation formed a partnership. The S corporation became the general partner and the Taxpayer was the limited partner. The entity paid fees and expenses to the limited partnership pursuant to a consulting contract. A guaranteed distribution was made to the S Corporation as the general partner. The S Corporation paid a salary and dividends to the Taxpayer. As the limited partner, the Taxpayer also received distributions from the partnership. The arrangement was set up in order for the Taxpayer to continue to provide services to the Country A entity while he resided in Virginia.
Because of the son's illness, the Taxpayer admits that he was not certain how long he would be in Virginia. The Taxpayer also indicates that he was fortunate to be able to get the son treatment in Virginia, as the variety and quality of treatments for the son's illness were not available in Country A.
During this same period, the Taxpayer retained some connections with Country A. The Taxpayer appears to have retained a provisional Country A driver's license. He also commuted to Country A for board meetings for which he continued to receive a salary from the Country A entity.
The documentation provided, however, indicates that Country A's government suspended the Taxpayer's permanent residency status and considered him to have repatriated to the United States. Based on the evidence, the Department concludes the Taxpayer changed his domiciliary residence from Country A to Virginia in 2002.
Country A Domicile
When the son was medically released to travel, the Taxpayer took a number of actions to reestablish domicile in Country A. In 2007, the Taxpayer purchased a permanent place of abode in Country A and returned to full-time employment at the Country A entity, and leased motor vehicles in Country A. In 2008, he obtained a permanent Country A driver's license. According to numerous Virginia court cases, changing domicile is a two-step process. First, a person must intend to permanently move away from one domicile. Second, the person must acquire a new domicile where he intends to remain permanently or indefinitely. See Robert H. Talley v. Commonwealth of Virginia, 127 Va. 516, 103 S.E. 612 (1920), State-Planters Bank, v. Commonwealth of Virginia, 174 Va. 289, 6 S.E.2d 629 (1940), and Barbara B. Woods v. Commonwealth of Virginia, Circuit Court of Wise County and the City of Norton, Law No. 97-422 (3/20/2002).
The Taxpayer retained almost all of his connections with Virginia. He not only retained his Virginia driver's license but he renewed it on at least two occasions, including one time after he returned to Country A. Virginia Code § 46.2-323.1 B requires every applicant for a Virginia driver's license to sign a statement under penalty of perjury "certifying that the information presented on the application is true and correct." Further, any applicant who knowingly makes a providing a false statement to DMV is subject to penalties under Va. Code § 46.2-348.
In addition, federal law requires states to establish procedures in order to permit absentee voting in federal elections for certain overseas voters. See 42 U.S.C. § 1973ff-1. Under 42 U.S.C. § 1973ff-6(5), an overseas voter must be permitted to vote in the last place in which such individual was domiciled before leaving the United States. To comply with federal law, the SBE established procedures allowing overseas voters to be eligible for a temporary voter registration in order to vote in elections. Information indicates the Taxpayer failed to notify the SBE that he would be residing outside of the United States, and he voted as an absentee resident voter in 2008.
The Taxpayer also continued to own a place of abode and motor vehicles registered in Virginia. One of the Taxpayer's children remained in the home while finishing high school and then attended a Virginia college, where he was eligible for instate tuition. In addition, the wife and remaining children returned to reside in the home after the Taxpayer passed away in 2011.
CONCLUSION
The preponderance of evidence indicates the Taxpayer failed to abandon his Virginia domicile when he returned to Country A in 2007. Accordingly, the Department must conclude the Taxpayer intended to remain domiciled in Virginia during the 2008 through 2011 taxable years.
The assessments at issue are based on information available to the Department pursuant to Va. Code § 58.1-111. As such, the Taxpayer's representatives should file Virginia income tax returns to more accurately reflect the tax liability for the 2008 through 2011 taxable years. The returns should be submitted to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****, within 30 days from the date of this letter. If the returns are not received, the Department's assessments will be considered to be correct as issued and collection actions will resume.
The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions 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,
-
-
-
-
-
-
Craig M. Burns
Tax Commissioner
AR/1-5236320941.D
Rulings of the Tax Commissioner