October 13, 2016
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek a reconsideration of Public Document (P.D.) 15-90 (4/28/2015), and correction of the Virginia individual income tax assessments issued to ***** (the “Taxpayer”) for the taxable years ended December 31, 2011 through 2013.
FACTS
In P.D. 15-90, the Department determined that the Taxpayer remained a domiciliary resident of Virginia for the 2011 taxable year because he had not established a residence in ***** (State A) and upheld the assessment. The Taxpayer paid the 2011 assessment in full and filed a claim for refund.
The Taxpayer and his wife were audited for the 2012 and 2013 taxable years and the Department concluded that the Taxpayer was a domiciliary resident of Virginia. As a result, the Department issued assessments. The Taxpayer appeals these assessments, contending that he was not an actual or domiciliary resident of Virginia during those taxable years.
DETERMINATION
Protective Claim
Virginia Code § 58.1-1824 permits any person who has paid an assessment of taxes administered by the Department of Taxation to file a protective claim for refund within three years of the date of an assessment. Pursuant to the authority granted the Department under Va. Code § 58.1-1824, a protective claim for refund can be held pending the outcome of another case before the courts or the claim may be decided based upon its merits pursuant to Va. Code § 58.1-1821. As permitted by statute, the Taxpayer's request for the 2011 taxable year has been treated as an appeal under Va. Code § 58.1-1821.
Residency
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 individuals’ 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 the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.
The Department determines a taxpayer's intent through the information provided. A taxpayer has the burden of proving that he or she has abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Tax Commissioner must conclude that he or she intended to remain indefinitely in Virginia.
State A
In P.D. 15-90, the Department determined that the Taxpayer was a domiciliary resident of Virginia for the 2011 taxable year. The Taxpayer argues that the Department's determination was erroneous. To that end, the Taxpayer has supplied additional documentation that he had not provided with his initial appeal. Specifically, he has made available a copy of an employment letter from his former State A employer which required the Taxpayer to reside in State A. The Taxpayer argues that he became a resident of State A because relocation was required by his employer.
In considering employment as it relates to an individual's domicile, the Department has analyzed whether a specific employment contract established residency permanently or for an indefinite period of time. See P.D. 99-158 (6/21/1999). In P.D. 01-161 (10/23/2001), the Department held that a taxpayer that takes sufficient actions to abandon his Virginia domicile can be considered to have established a new domicile even if he was temporarily employed for a definite period of time. However, the burden is on the Taxpayer to provide clear and cogent evidence that he established a new domicile. The only additional evidence provided by the Taxpayer is the employment letter requiring the Taxpayer to reside in State A. While this letter carries some weight, the Department finds that is not persuasive because it is possible to reside in another state while retaining one's Virginia domicile.
Pennsylvania
The Taxpayer was transferred by his employer to Pennsylvania in September 2012. While residing in Pennsylvania, he lived in hotels. The Taxpayer filed a 2013 Pennsylvania resident return.
The Taxpayer filed Virginia nonresident individual income tax returns under the status “married, filing separately on this combined return” for the 2012 and 2013 taxable years. He attributed all of his income earned through September 2012 to State A and the income earned for the final quarter of 2012 and for all of 2013 to Pennsylvania.
The Taxpayer contends that he had successfully ended his Virginia domicile and established a State A residence prior to 2012 and claims he remained a domiciliary resident of State A while he was working in Pennsylvania in 2012 and 2013. As indicated above, however, the Department has found that the Taxpayer failed to abandon his Virginia domicile in 2011. The evidence also indicates the Taxpayer remained a Virginia domiciliary resident in 2012 prior to his move to Pennsylvania.
Further, even if the Taxpayer asserted he changed his domiciliary residence to Pennsylvania, he never established a permanent place of abode. While he did become employed in Pennsylvania in September 2012 and filed a resident return for 2013, he resided temporarily in hotels. An individual who intends to remain permanently or indefinitely in a state must establish a permanent place of residence. The Department does not consider hotels to be a permanent or indefinite residence. See P.D. 99-75 (4/19/1999).
Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct.” As such, the burden of proof is on the Taxpayer to show he was not subject to income tax in Virginia. In this instance, the Taxpayer has not provided no documentation or facts to show that he had abandoned his Virginia domicile and established a domicile in Pennsylvania.
Reciprocity
Virginia Code § 58.1-342 B grants the Department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income tax when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. In addition, employers are not required to withhold Virginia income tax from residents of these states. Virginia currently has this type of agreement with Maryland, West Virginia and Pennsylvania.
The Commonwealth's reciprocity agreement with Pennsylvania permits Virginia residents working daily in Pennsylvania to have taxes withheld and paid to Virginia only. If a Virginia resident has filed and paid income tax income tax to Pennsylvania when earning wages in Pennsylvania, he should file an amended income tax return with that state in order to receive a refund.
In this case, the Taxpayer filed a return as if he was a full year resident of Pennsylvania during 2013. While the Taxpayer spent more than 183 days in Pennsylvania 2013, it does not appear that he established a permanent place of abode as required under Pa. Stat. Ann. § 7301(p). Thus, the Taxpayer was neither a domiciliary nor statutory resident of Pennsylvania. As a Virginia resident, the Taxpayer would have been exempt from Pennsylvania income taxation on the wage income he earned there under the reciprocity agreement.
CONCLUSION
Based on the evidence provided, the Taxpayer was required to file Virginia resident individual income tax returns for the 2011 through 2013 taxable years. Because the Taxpayer failed to file as a resident, the Department was correct in issuing assessments. Accordingly, no refund will be granted for the 2011 taxable year.
The 2012 and 2013 assessments were based on the best information available to the Department pursuant to Va. Code § 58.1-111. The Taxpayer may have additional information to more accurately determine his 2012 and 2013 Virginia income tax liability. The Taxpayer, therefore, may file amended Virginia resident individual income tax returns for the 2012 and 2013 taxable years. The amended returns should be submitted to: Virginia Department of Taxation, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****, within 30 days of the date of this letter. The returns will be reviewed and the assessments will be adjusted, as warranted. If they are not submitted within the time allotted, the assessments for the 2012 and 2013 taxable years will be considered to be correct and collection action will resume.
In addition, the Taxpayer may wish to contact the Pennsylvania Department of Revenue in order to claim a refund for the income tax paid to that state.
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/1-6284577109.B