June 29, 2017
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 “Taxpayer”) for the taxable year ended December 31, 2012.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating the Taxpayer may have been required to file a Virginia individual income tax return for the 2012 taxable year. The Department requested additional information to determine whether the Taxpayer's income was subject to Virginia income tax. In response, the Taxpayer claimed that she was exempt from Virginia income tax under the Servicemembers Civil Relief Act (the “Act”) because she was the spouse of a military service member stationed in Virginia and they were both domiciliary residents of ***** (State A). The Department requested additional information from the Taxpayer regarding her claim and additional documentation was submitted. As a result of its review, the Department concluded that the Taxpayer was taxable as a domiciliary resident of Virginia and an assessment was issued. The Taxpayer appealed, contending she was exempt from Virginia income tax under the Act.
DETERMINATION
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 actually reside elsewhere. For a person to change domiciliary residency to another state, 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.
Residency of a Military Spouse
The Act, codified at 50 U.S.C. § 3901 et seq. (formerly 50 U.S.C. § 511 et seq.) was amended, effective for the 2009 taxable year and thereafter, to address the residency of military spouses. Specifically, 50 U.S.C. § 4001(a)(2) (formerly 50 U.S.C. § 571(a)(2)) was enacted 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, as the case may be, is the same for the service member and the spouse.” The Act does not apply to the spouses of military and naval personnel who have established domiciliary status within Virginia. See Public Document (P.D.) 11-114 (6/21/2011). In Virginia 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:
- Whether the person claiming exemption is married to a service member who is present in Virginia pursuant to military orders.
- The service member's domicile.
- The spouse's domicile and the circumstances in which it was established.
- The extent to which the spouse has maintained contacts with the domicile.
- 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, situs 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. See United States v. Minnesota, 97 F. Supp. 2d 973 (2000) (Minnesota).
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 (4/8/2010). 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.
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 to indicate intent to maintain domicile there. Such connections would include obtaining and retaining 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.
In P.D. 15-186 (9/28/2015), the Department suggested, given the language of the Act, that certain activities conducted by a military spouse, such as the spouse's profession or employment, income sources, permanent place of abode, enrolling children in local schools, and situs of real and tangible property, may no longer be considered to be activities associated with establishing domicile in a state. While such activities may normally be considered to be incidental to a spouse's presence in the state as a result of the service member's military orders, they will be considered when there appears to be an affirmative choice to make their current state of residence their domicile.
In addition, the Department has repeatedly stated that a change of domicile occurs as part of a process in which no single factor is dispositive. See, e.g., P.D. 10-180 (8/16/2010), P.D. 11-90 (6/2/2011), and P.D. 13-115 (6/26/2013). Therefore, more weight may be assigned to such factors to the extent any continued after the service person retired or was reassigned elsewhere from a Virginia duty station. The Department would consider the fact that any such connections continued to be evidence that a taxpayer initially intended to establish a Virginia domicile.
The Taxpayer established numerous connections with Virginia. After initially renting a personal residence when she arrived in Virginia in 2010, she purchased a residence in Virginia in 2011 and continues to live there. A member of her immediate family has also lived near her in Virginia since 2014. One of her children attended Virginia public schools and now attends a public university in Virginia, receiving in-state tuition rates. She also registered to vote in Virginia in 2010 and voted in the 2016 election. In addition, she registered a vehicle in Virginia in 2016 and obtained a Virginia driver's license in 2014.
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 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).
With regard to eligibility to vote, Article II, Section 1 of the Constitution of Virginia states in relevant part as follows:
In elections by the people, the qualifications of voters shall be as follows: Each voter shall be a citizen of the United States, shall be eighteen years of age, shall fulfill the residency requirements set forth in this section, and shall be registered to vote pursuant to this article.
The residence requirements shall be that each voter shall be a resident of the Commonwealth and of the precinct in which he votes. Residence, for all purposes of qualification to vote, requires both domicile and a place of abode.
The domicile and place of abode requirement found in the Constitution of Virginia is also reflected in the definition of “residence” or “resident” used in Virginia election statutes. See Va. Code § 24.2-101. In addition, should a military spouse choose to register to vote in Virginia, Virginia law provides a presumption that such spouse established domicile if he has a physical presence and place of abode in Virginia. See Va. Code § 24.2-417.1. The presumption can be overcome if the spouse expressly states otherwise. See id. This provision, however, provides no exception to the domicile requirement for military spouses. The fact remains that the spouse must be both domiciled in and have a place of abode in Virginia to be eligible to vote. Consistent with the precedent established by the Virginia Supreme Court in Coopers Adm'r v. Commonwealth, 121 Va. 338, 93 S. E. 680 (1917), the Department will consider the fact that a military service member or spouse obtained a Virginia voter's registration and voted in elections in Virginia to be very strong evidence that that individual considered Virginia to be her domicile during the time she held and used such registrations.
When the Taxpayer's spouse retired from the military in 2014, she began filing Virginia income tax returns as a resident. Although certain of the Taxpayer's connections with Virginia were not established until 2014 or thereafter, the Department has repeatedly observed that a change of domicile occurs as part of a process in which no single factor is dispositive. When that process is viewed as a whole, and considering the fact that domicile determinations depend primarily on evidence of intent, all of the connections a taxpayer formed with Virginia over the course of time may be evidence of the taxpayer's original intent. In addition, the fact that a spouse remained in Virginia after her service member husband's retirement is additional evidence that she intended Virginia to be the permanent or indefinite home. If a spouse is only present in Virginia because of the service member's orders and claims another state as her permanent home, it is reasonable to conclude that the spouse would move with the service member upon conclusion of those orders.
The Taxpayer maintained few connections with State A during the time she resided in Virginia. Several of her children received in-state tuition at a State A university from 2011 through 2013. The tuition, however, was paid under a pre-paid tuition contract owned by the Taxpayer's spouse. The vehicle that was registered in Virginia in 2016 had also been registered in State A by her spouse since 2010.
The Taxpayer makes a number of specific arguments that she remained a State A domiciliary. She contends the Department should have determined that she qualified for relief under the Act as a military spouse based on her husband's military orders assigning him to a Virginia duty station. The fact that she was the spouse of a military service member stationed in Virginia is a prerequisite for relief, but as stated above, a military spouse can still acquire domicile in a state the service member is stationed in depending on the facts and circumstances.
The Taxpayer also asserts that there should be an implication that the spouse keeps the same domicile as the military service member unless the service member resigns or retires or the couple gets divorced. In addition, the Taxpayer argues that her spouse's contacts with State A should be attributable to her. Although the domicile of the service member and the couple's marital status would be factors to consider, those factors are not determinative. In addition, the assumption that spouses share the same domicile has been rejected as “completely anachronistic” by the courts in the state the Taxpayer claims was her domicile. See Eckel v. Eckel, 522 So.2d 1018, 1021 (Fla. Dist. Ct. App. 1988) (quoting Bowers v. Bowers, 287 So.2d 722, 724 (Fla. Dist. Ct. App. 1973), cert. discharged, 326 So.2d 172 (Fla. 1976)).
Further, the Taxpayer states that actions she took in other states prior to passage of the Act should not be considered factors against her, as she was merely attempting to comply with various jurisdictional laws. As stated above, the Department understands that a military spouse will generally comply with jurisdictional authorities with regard to requirements in the state where the new duty station is located. Many states, however, including Virginia, provide relief for military service members and their families from compliance with such jurisdictional requirements. While it would be impractical for the Department to perform a comprehensive review of every possible avenue of relief that may have been available to a military spouse in each state in any given case, the Department has addressed relief available to military service members and their spouses under Virginia law.
For example, Va. Code § 46.2-306 specifically exempts service members on active duty, their spouses, and dependent children residing in Virginia from the requirement to obtain a Virginia driver's license when such individuals have been licensed as drivers under the laws of their home state. Accordingly, when a service member or spouse obtains a Virginia driver's license, the Department will typically consider that action to be a strong indicator of intent to change domiciliary residency. The Department, however, may give the driver's license factor less weight in such cases if the service member or spouse provides evidence that they are no longer entitled to hold a driver's license in the home state, or that it was impossible or impractical to do so. The Taxpayer has not provided any such evidence in this case.
Finally, the Taxpayer contests the assessment on the basis that the Department previously approved refund claims she had made for the 2010 and 2011 taxable years as a military spouse. Virginia receives approximately 3.5 million individual income tax returns per year. Only a small portion of the individual taxpayers can be audited or reviewed annually. The fact that the Department processed the refund claims for the 2010 and 2011 taxable years does not imply that the Department agreed she was a domiciliary resident of State A.
In any domicile determination, regardless of whether it involves military personnel or civilians, the ultimate question to be answered is whether the taxpayer was present in a state with the intention to remain permanently or indefinitely and whether the taxpayer abandoned a prior domicile with no intention to return. It appears that the Taxpayer has been a full-time resident of Virginia continuously since 2010, including for several more years after her husband retired from the military in 2014. She obtained a Virginia voter's registration soon after coming to Virginia, a privilege afforded only to domiciliary residents of Virginia. She also purchased a personal residence, placed a child in Virginia public schools and obtained employment. She established further connections later, such as a driver's license and vehicle registration. One of her children now also attends a Virginia university and receives in-state tuition rates. In addition, once her spouse retired from service, she remained in Virginia and began filing Virginia income tax returns as a resident.
In the Department's opinion, such actions unquestionably evidence the Taxpayer's intent to establish a Virginia domicile. If the Act required the Department to grant the Taxpayer relief from income taxation in such circumstances, it is difficult to imagine any combination of factors that would be sufficient to permit the Commonwealth to tax the income of military service members or their spouses stationed in Virginia. Practically, the Act would become an absolute bar to state income taxation as long as the service member entered the military from a state without an income tax. As the federal court in Minnesota explained, the Act was not intended to guarantee a service member could never be subject to tax in a state in which he or she was stationed. See 97 Minnesota, F. Supp. 2d at 984. In the Department's opinion, the same reasoning applies to cases involving military spouses claiming exemption under the Act.
CONCLUSION
After carefully considering all of the information and arguments presented, the Department finds that the Taxpayer was taxable as a domiciliary resident of Virginia for the 2012 taxable year. The Taxpayer will receive an updated bill which will include accrued interest to date. The Taxpayer should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collections actions.
The Code of Virginia sections, 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 *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1064.M