September 28, 2015
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek a refund of the Virginia withholding payments made on behalf of ***** (the "Taxpayer") for the taxable year ended December 31, 2013. I apologize for the delay in responding to your request.
FACTS
The Taxpayer was the wife of military service member who moved to a duty station in Virginia from ***** (State A) during the 2012 taxable year. The Taxpayer was employed by a Virginia business that made Virginia withholding payments on behalf of the Taxpayer. The Taxpayer filed a 2013 nonresident claim for refund. The Department denied the claim and held the Taxpayer as a resident of Virginia. The Taxpayer appeals the Department's decision, contending that obtaining a Virginia driver's license alone is not a sufficient basis to hold her as a resident of Virginia.
DETERMINATION
The Service Members 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 station them in a different state or country whether permanently or temporarily. The Act did not apply to the spouses of military and naval personnel before 2009. The Department has ruled that the residency status of a taxpayer requires analysis separate from their military spouse. See Public Document (P.D.) 05-92 (6/9/2005) and P.D. 05-150 (9/8/2005).
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 Virginia Tax Bulletin (VTB) 9-10 (11/12/2009) and VTB 10-1.
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 spouse cannot simply elect to claim the service member's domicile. In order to claim a domicile in another state, the spouse must have (i) resided in the other state with the intent to make a permanent home there, and (ii) not abandoned that domicile when moving to reside with the service member or for any other reason. 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.
In determining domicile, the Department will generally consider 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 domicile.
The Department has typically found that when a spouse moves to follow military personnel to a new duty station, they will generally abandon their former real property and move the family. See P.D. 10-32 (4/08/2010). The spouse will establish a new permanent place of abode near the new duty station, enroll children in school, and seek employment of an indeterminate duration. The spouse will generally comply with jurisdictional authorities with regard to driving permits, vehicle registrations, voting registrations, and education requirements. The spouse will also change social, charitable and church associations. Moreover, the military service member and the spouse move with no assurance that they may move back to a former duty station.
The 2009 amendments to the Act, however, essentially eliminated certain activities conducted by a military spouse that have traditionally been considered to be activities associated with establishing domicile in a state. These activities include the spouse's profession or employment, income sources, permanent place of abode, enrolling children in local schools, and sites of real and tangible property. Thus, a state is left with a very narrow list of activities with which to evaluate whether the spouse of a service member intended to change their domicile.
In general, the Department will not seek to tax the spouse of a military service member so long as the spouse maintains sufficient connections with the service member's domiciliary state with intent to maintain domicile there. Such connections would include obtaining and retraining 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 the spouse of a military service member maintains such connections, he or she would be considered to be a resident of the other state even though they work, live, and establish a place of abode in Virginia.
The Taxpayer contends that the Department held her as a resident of Virginia solely on the basis that she obtained a Virginia driver's license when her State A driver's license was set to expire. The Taxpayer explains that she obtained a Virginia driver's license because it was not efficient for her to return to State A at the time.
When determining the domicile of a military spouse, the Department frequently examines the taxpayer's driver's license history. This is because an individual cannot typically obtain a driver's license unless he/she is a resident of the issuing jurisdiction. Va. Code § 46.2-323.1 states, "No driver's license ... shall be issued to any person who is not a Virginia resident." In addition, Va. Code § 46.2-305 exempts United States armed services personnel stationed in Virginia from the requirement of obtaining a Virginia driver's license.
In fact, 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. Further, any applicant who knowingly makes a false statement to DMV is subject to penalties under Va. Code § 46.2-348. The Department has found that an individual may successfully establish a domicile outside Virginia even if he/she retains a Virginia driver's license. See 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 (12/9/2002).
Moreover, State A's statutes include special provisions for military personnel and their dependents who are located outside the state. The Taxpayer asserts her State A driver's license was set to expire soon after she arrived in Virginia and it was cost prohibitive to get back to the west coast to renew it. Knowing that the license was expiring shortly, the Taxpayer could have attempted to renew her license before she left State A. Further, after obtaining a Virginia driver's license in November 2012, the Taxpayer has made no attempt to reestablish her license in State A. Finally, State A motor vehicle records show motor vehicles registered in the service member's name only.
The Taxpayer asserts that she maintained her residence in State A and provided evidence of ownership to support her claim. The Taxpayer also established a permanent place of abode when she moved to Virginia. The evidence also shows the State A property had been converted to a rental property and the Taxpayer established a permanent place of abode in Virginia. Absent any other evidence linking the Taxpayer to State A, the fact that she was living at a permanent place of abode in Virginia for an indefinite period of time and she obtained and continues to hold a Virginia driver's license indicate to the Department an intent to change her domicile to Virginia.
Based on the information provided, the Department finds that the Taxpayer did not maintain sufficient connections to maintain her State A domicile. As such, the Taxpayer is not eligible for the protections of the Act and the request for refund is denied. The Taxpayer may have additional information that more accurately reflects her Virginia taxable income. Accordingly, the Taxpayer is hereby requested to file a Virginia income tax return for the 2013 taxable year to more accurately reflect her Virginia income tax liability. The Taxpayer should file the requested return within 30 days of the date of this letter and mail the return to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attention: *****, P.O. Box 27203, Richmond, Virginia 23218-7203. Once the return is received, it will be processed and the assessment adjusted as warranted.
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 determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5888720890.D