Individual Income Tax
The Servicemembers Civil Relief Act
Payment and Refund
Persons Subject to Tax
Servicemembers Civil Relief Act
June 4, 2014
Re: § 58.1-1821 Application: Individual Income Tax
This will reply to your letter in which you seek correction of the individual income tax assessments issued to ***** (the "Taxpayer"), for the taxable years ended December 31, 2010 through 2012.
The Taxpayer entered military service in 1996 with a home of record in ***** (State A). In 2001, the Taxpayer married a military service member while both were stationed and residing in ***** (State B). The Taxpayer filed a State of Legal Residence Certificate indicating that State B was his domicile, and his spouse obtained a State B driver's license. The Taxpayer also registered his vehicle in State B. The Taxpayer states that they registered to vote in State B as well.
In 2002, the Taxpayer and his spouse were transferred to a duty station in ***** (State C). They purchased a home there, and the Taxpayer obtained a State C driver's license when his State A license expired that year. The Taxpayer, however, renewed his State B vehicle registration while he and his wife resided in State C. In 2007, the Taxpayer's spouse was transferred to a duty station in Virginia. At that time, they sold their State C residence, the Taxpayer left the military, and he moved to Virginia to be with his spouse.
Since moving to Virginia, the Taxpayer has renewed his State B vehicle registration several more times. The Taxpayer and his spouse also titled another vehicle in State B in 2007. In addition, the Taxpayer obtained a State B driver's license in 2011. The Taxpayer and his spouse also filed State B tax returns for the 2009 through 2012 taxable years.
For the 2010 through 2012 taxable years, the Taxpayer filed claims for Virginia nonresident withholding based on his status as the spouse of a military service member. Under review, the Department determined that the Taxpayer did not qualify for relief because he did not share the same domicile as the service member. As a result, the Department issued assessments to recover a portion of the refunds issued for the 2010 and 2011 taxable years. The Department also denied the Taxpayer's refund request for the 2012 taxable year and issued an assessment for additional tax due. The Taxpayer appeals, contending that he and his spouse were both domiciliary residents of State B.
The Servicemembers Civil Relief Act (the "Act"), codified at 50 U.S.C. § 571 et seq., was amended effective for the 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. In Tax Bulletin (VTB) 10-1 (1/29/2010), 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.
While the Act provides that military and naval personnel and their spouses do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different state or country, it 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 vs. Minnesota Department of Revenue, 97 F. Supp. 2d 973 (2000).
In general, the Department will not seek to tax a military service member or spouses so long as they maintain sufficient connections with another state to indicate intent to maintain their domicile. 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 and obligations of a particular state. As long as a military service member and spouse maintain such connections, he or she would be considered to be a resident of the other state even though he or she works, lives, and established a permanent place of abode in Virginia.
Because the Act is effective only for the 2009 taxable year and thereafter, the Department must examine the Taxpayer's activities to determine if he had acquired domicile in Virginia prior to 2009. In Public Document (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).
The Taxpayer and his spouse performed activities consistent with establishing and retaining domicile in State B. In 2001, the Taxpayer filed a State of Legal Residence Certificate indicating he was domiciled in State B, and the Taxpayer never changed the designation. The Taxpayer also registered his vehicle in State B and repeatedly renewed the registration while he lived in both State C and Virginia. The Taxpayer titled another vehicle he co-owned with his spouse in State B as well. He states that all of the vehicles they have owned since 2000 have been registered in State B. In addition, the Taxpayer has been registered to vote in State B since 2001.
The Taxpayer also performed some activities indicating an intent to establish and retain domicile in State C. The Taxpayer and his spouse purchased a residence in State C when they were transferred to the duty station there. The Taxpayer also obtained a driver's license in State C when his State A license expired in 2002. The Taxpayer retained the State C license until he obtained a State B license in 2011. In addition, the Taxpayer listed State C as his state of domicile when he filed a Virginia Special Nonresident Claim For Individual Income Tax Withheld (Form 763-S) for the 2009 taxable year. The Taxpayer, however, states that they relied on erroneous advice when they first prepared the form. The Taxpayer also attempted to amend the form to indicate that State B was his domicile.
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 intent to remain there permanently or indefinitely. The burden of proving that the domicile has been changed lies with the person alleging the change.
The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. Although the Taxpayer established some connections with other states, the preponderance of evidence indicates the Taxpayer successfully established domicile in State B and maintained sufficient connections with State B to have retained such domicile. Because the spouse was a domiciliary resident of State B, the requirements of the Act were satisfied because the Taxpayer and the service member shared the same domicile. Accordingly, the Department will abate the assessments for all taxable years in question and issue a refund for the 2012 taxable year.
The Code of Virginia section, tax bulletin and public documents 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 determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Craig M. Burns