July 19, 2017
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you request correction of the individual income tax assessment issued to your clients, ***** (the “Taxpayers”) for the taxable year ended December 31, 2013.
FACTS
The Department received information from the Internal Revenue Service (IRS) that the Taxpayers may have income subject to Virginia income tax. Because no return was on file, the Department requested additional information. The Taxpayers did not respond within the allowed time and an assessment was issued for the 2013 taxable year. The Taxpayers appeal the assessment, contending they established a new domicile outside of Virginia.
DETERMIATION
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 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.
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.
The Taxpayers provided substantial documentation to support their claim of establishing residency in ***** (State A) and relocating to ***** (Country B). They currently maintain a permanent place of abode in Country B. The husband provides services for a business located in Country B, and he has continuously renewed his work visa for himself and his family. The Taxpayers obtained driver's licenses in Country B and state they registered vehicles in Country B.
Although the Taxpayers provided sufficient evidence of residing abroad, they continue to receive financial documents at an address in Virginia and maintain several rental properties in Virginia. In addition, while residing in Country B, the Taxpayers surrendered their State A driver's licenses and obtained Virginia licenses in October 2010. The Taxpayers assert they held the driver's licenses for convenience when visiting with their parents. The licenses are set to expire in 2018; however, the wife requested a duplicate in July 2015.
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 fact that an individual has a Virginia driver's license is one factor to consider, among other possible factors, in any given domicile case. Nonresidents are not permitted to hold a Virginia driver's license. See Va. Code § 46.2-323.1. They are, however, permitted to continue to use their licenses from their home states or countries. See Va. Code § 46.2-307. For the purposes of Title 46.2 of the Code of Virginia, “nonresident” is generally defined as every person who is not domiciled in the Commonwealth. See Va. Code § 46.2-100. Thus, in general, an individual must be a domiciliary resident of Virginia in order to hold a Virginia driver's license.
Individuals who have resided in Virginia more than six months, however, are deemed to be residents for purposes of applying most of the provisions of Title 46.2 of the Code of Virginia, including the driver's licensing provisions of Title 46.2, Chapter 3 (Va. Code § 46.2-300 et seq.). In addition, because an individual who has been physically present and residing in Virginia for more than six months may remain a domiciliary resident of another state or country, it may be necessary in such cases to examine additional factors to determine whether a person who has obtained a driver's license based on physical presence and actual residency in Virginia also intended to become a domiciliary resident of Virginia. However, once it is clear that an individual has established domiciliary residency in Virginia, subsequent renewals of a Virginia driver's license, even while absent from the state, will be considered very strong evidence of the individual's intent to remain a domiciliary resident of Virginia. That is because the basis of the individual's claim to be entitled to a Virginia driver's license would no longer be based on the length of time he was physically present in Virginia as an actual resident, but rather on the implication that he remained a domiciliary resident of Virginia.
Nonresident Individuals
Under Va. Code § 58.1-325, individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. Virginia Code § 58.1-302 limits the term income and deductions from Virginia sources to the items of income, gain, loss and deductions attributable to the ownership of property in Virginia or the conduct of a business, trade, profession or occupation in Virginia.
During the taxable years at issue, the Taxpayers received rental income from properties located in Virginia. The Taxpayers assert the rental properties reported a loss and there should be no need to file a return.
In accordance with Title 23 of the Virginia Administrative Code (VAC) 10-110-180 A, the Virginia taxable income of a nonresident is computed by multiplying his Virginia taxable income (computed as if he were a resident) by the ratio of his net income, gain, loss, and deductions from Virginia sources to his net income, gain, loss, and deduction from all sources. Thus, a nonresident individual who has income from carrying on a business, trade, profession, or occupation within Virginia is required to file a Virginia Nonresident Individual Income Tax Return, currently Form 763, pursuant to Va. Code § 58.1-341, unless the individual meets the filing exception described in Va. Code § 58.1-321. See P.D. 07-148 (9/12/2007)
CONCLUSION
Under Va. Code § 58.1-302, a person may change their domiciliary residence to another state or country, by acquiring a new domicile where that person is physically present with the intention to remain there permanently or indefinitely. The information provided shows that the Taxpayers have established sufficient substantial domiciliary connections to support they intend to reside in Country B for an indefinite period.
While the Department concedes that the Taxpayers were not a domiciliary residents of Virginia during the 2013 taxable year, continuing connections with Virginia, such as retaining a Virginia driver's license or other indicators of a permanent residence in Virginia, will likely result in future contacts by the Department with respect to the situs of their domicile. As in any determination, a change in the facts and circumstances could result in a change in the Department's determination in subsequent taxable years. In addition, the Taxpayers should be aware that Virginia law does not permit nonresidents to obtain Virginia driver's licenses, and persons providing a false statement to an agency of the Commonwealth may be subject to penalty under Virginia law. Further, any individual who knowingly makes a false statement to DMV is subject to penalties under Va. Code § 46.2-348.
In addition, although the Taxpayers may not have a domiciliary filing requirement in Virginia, they were required to file a nonresident return to report the Virginia rental income received during the taxable year at issue. As such, the Taxpayers are hereby requested to file a 2013 Virginia nonresident income tax return within 60 days from the date of this notice, and mail it to: Virginia Department of Taxation, P.O. Box 27203, Richmond, Virginia, 23261-7203, Attn: *****. Once the return is received, it will be processed and the 2013 assessment will be adjusted accordingly.
The Code of Virginia sections, regulation and public document are available online 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/806.D