June 22, 2016
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 ***** (the “Taxpayers”) for the taxable year ended December 31, 2012.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayers may have been required to file a Virginia income tax return for the 2012 taxable year. A review of the Department's records showed that the Taxpayers had not filed a return. The Department requested additional information from the Taxpayers to determine if their income was subject to Virginia individual income tax.
Based on the information provided, the Department determined that the Taxpayers were taxable as part-year Virginia residents beginning in August 2012. In September 2012, the Taxpayers had sold real property in ***** (State A). Accordingly, the Department's assessment included the gain on the sale in the portion of the Taxpayer's income that was attributable to their period of residence in Virginia. The Taxpayers appealed, contending they were not full-time Virginia residents until December 2012 and thus the gain should not have been subject to Virginia income tax.
DETERMINATION
Part-Year Residents
Virginia Code § 58.1-303 provides that a taxpayer who becomes a resident of Virginia or another state, as the case may be, during the taxable year is subject to taxation for the period in which he was a Virginia resident. Accordingly, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia.
Domicile
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.
In this case, the Taxpayers spent less than 183 days in Virginia. As such, they were not actual residents of Virginia. The issue, therefore, becomes whether the Taxpayers changed their domicile to Virginia prior to the sale of the State A property. If so, then the gain on the sale would have been attributable to their period of Virginia residency and subject to Virginia income tax.
In response to the auditor's initial information request, the Taxpayers stated that the date they moved to Virginia was August 6, 2012. On appeal, the Taxpayers explain that this was the date they closed the sale on their new residence in Virginia, but that they did not live in Virginia full-time until December 2012. The Department requested further information concerning the time the Taxpayers spent in Virginia from August 2012 until December 2012, but the information was not provided.
In addition to purchasing a residence, the Taxpayers established further connections with Virginia. The Taxpayers registered a motor vehicle with a Virginia locality and obtained a Virginia voter's registration in October 2012. The Taxpayers also obtained Virginia driver's licenses in September 2012.
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 (12/9/2002).
The Taxpayers also retained some connections with State A. They continued to own real property in State A and still had some personal property there until June 2013. They also admit they split time between Virginia and State A prior to December 2012 because they needed to get their residence and some additional property in State A prepared for sale. The Department considers placing a residence up for sale and purchasing a new residence in a different state to be strong evidence of intent to change domicile. In addition, a change of domicile can occur even if the taxpayer still owns the prior residence pending a sale. See P.D. 15-84 (4/23/2015).
The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. Where a change of domicile occurs as part of a process, the exact timing of when the true intent of an individual to change domiciliary residence occurs can be difficult to discern. Unless a change in domicile has clearly been established through the preponderance of evidence, the Department will generally consider a change to have occurred toward the beginning of the process.
After carefully considering the information provided, I find that the Taxpayers have not proven that the gain from the sale of State A property was attributable to their period of residence outside Virginia. In addition to the fact that the Taxpayers were already spending time in Virginia, several connections the Taxpayers established with Virginia indicate they considered themselves to be Virginia residents prior to the date the sale of the State A property closed, September 24, 2012. These include the driver's licenses, obtained on September 27, 2012, and the vehicle registration, which despite being in issued in October 2012, indicated the Taxpayers moved from State A to Virginia on September 17, 2012.
Based on the Taxpayers' assertions and the available evidence, the assessment is upheld. An updated bill will be issued shortly, which will include additional accrued interest. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest.
The Code of Virginia sections 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 *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6288317429.M