August 24, 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 ***** (the “Taxpayers”) for the taxable year ended December 31, 2012. I apologize for the delay in responding to your appeal.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayers, a husband and wife, may have been required to file a Virginia individual income tax return for the 2012 taxable year. A review of the Department's records showed the Taxpayers had not filed a return. The Department requested additional information to determine if their income was subject to Virginia income tax. When a response was not received, the Department issued an assessment. The Taxpayers filed an appeal, contending they were both domiciliary residents of ***** (State A).
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 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.
Residency of a Military Service Member
The Servicemembers Civil Relief Act (the “Act”), codified at 50 U.S.C. § 3901 et seq. (formerly 50 U.S.C. § 511 et seq.), provides that military personnel do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different state or country. The Act, however, does not preclude the possibility that armed forces personnel may acquire a new legal domicile in the state where they are stationed, and thus subject themselves to taxation by that state as if they were a domiciliary resident. In order for the change of domicile to occur, there must be an abandonment of the old domicile and the acquisition of a new one. This change must be exhibited by an individual's intent and conduct. See United States of America v. Minnesota Department of Revenue, 97 F. Supp. 2d 973 (2000) (Minnesota).
In general, the Department will not seek to tax an active duty military service member so long as the member maintains sufficient connections with another state to indicate intent to maintain domicile there. Such connections would include filing a State of Legal Residence Certificate (Department of Defense Form 2058), obtaining 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 a military service member maintains such connections, they would be considered to be a resident of the other state even though they work, live, and establish a permanent place of abode in Virginia. See Public Document (P.D.) 10-237 (9/30/2010).
A service member's “home of record” refers to the state from which a service member entered the military. Its primary purpose is determining military benefits such as travel entitlements upon separation from service. Depending on the circumstances, a service member's state of legal domicile and home of record might be the same. That is not true, however, for all service members. A change of domicile results from the establishment of a new residency in fact, coupled with an intent to abandon the old domicile and remain in the new, regardless of what state is listed as the home of record.
Residency of a Military Spouse
The Act 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.0 § 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 actions in Virginia that are inconsistent with maintaining a domicile elsewhere.
As with military service members, the Department will not seek to tax the spouse 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.
When a spouse moves to follow military personnel to a new duty station, they will generally abandon their former personal property and move the family. 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.
Under these circumstances, it seems reasonable to conclude that a military spouse will establish domicile in Virginia when following military personnel to Virginia, and abandon Virginia domicile when following them to the next duty station. To do otherwise would require the Department to investigate whether a military spouse had established domicile and abandoned domicile at every duty station prior to coming into Virginia. Further, when a military spouse is determined to have changed their domicile to Virginia prior to 2009, they will continue to be considered to be Virginia domiciliary residents until he or she takes sufficient actions to abandon their Virginia domicile and establish domicile elsewhere. See P.D. 10-32 (4/08/2010), P.D. 11-16 (2/11/2011) and P.D. 11-66 (4/26/2011). Thus, for taxable years prior to 2012, the residency status of an individual requires analysis separate from their service member spouse. See P.D. 05-92 (6/9/2005) and P.D. 05-150 (9/8/2005).
By letter dated February 2, 2016, the Department requested documentation to substantiate the Taxpayers' claim that the wife shared domiciliary residence with her husband. As of the date of this letter, no documentation has been received.
Information obtained by the Department shows that the wife obtained a Virginia driver's license in 2011 and registered a motor vehicle in Virginia. She established a permanent place of abode in Virginia. According to the Taxpayers, the wife obtained a driver's license and registered a motor vehicle in Virginia because it was required for her to attain employment. In addition, the Taxpayers owned a farm in Virginia.
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. 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, 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 the DMV is subject to penalties under Va. Code § 46.2-348.
In addition, 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 considers the action to be an indication of an intent to change one's domicile.
CONCLUSION
After consideration of the evidence presented with the Taxpayers' appeal, the Department finds that the husband remained a domiciliary resident of State A in 2012. However, because the husband owned a farm in Virginia, he may have income or loss from business conducted in Virginia and may be required to file a nonresident income tax return.
The Act prohibits a state from imposing tax on compensation of a service member for military service from sources within the state if the service member is not a resident or domiciliary of such state in which the service member is serving in compliance with military orders. See 50 U.S.C. § 4001(b) (formerly 50 U.S.0 § 571(b)). Service members, however, are still subject to Virginia income tax as nonresidents if they have other income from Virginia sources. See P.D. 05-92 (6/9/2005).
Further, the Taxpayers have provided no evidence that the wife ever resided in State A. In Coopers Adm'r v. Commonwealth, 121 Va. 338, 93 S. E. 680 (1917), the Virginia Supreme Court ruled that acquiring domicile in another state requires both intent and personal presence. Without establishing a physical presence in State A, the wife could not have established her domicile there and, thus, share the same domicile as her spouse. Absent any objective evidence of the wife's residency in State A, the Department will consider her to be a Virginia resident for the 2012 taxable year.
The assessment is based on information available to the Department pursuant to Va. Code § 58.1-111. The Taxpayers may have additional information that would more accurately reflect his Virginia taxable income. Therefore, the Taxpayers will be granted one last opportunity to provide the information concerning their residency during 2012.
In the alternative, the Taxpayers should file the appropriate Virginia income tax returns. The wife would file a resident return (Form 760). Her income would be determined in accordance with Va. Code § 58.1-322. The husband would file a nonresident return (Form 763) to report his Virginia source income in accordance with Va. Code § 58.1-325 and Title 23 of the Virginia Administrative Code (VAC) 10-110-180.
The Taxpayers may also choose to file jointly. If this election is made, their joint Virginia taxable income would be determined as if both were Virginia residents. See Va. Code § 58.1-326 and Title 23 VAC 10-110-190.
The returns or requested information should be submitted to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: ***** within 30 days from the date of this letter. Once the returns are received, they will be processed and the assessment adjusted accordingly. If they are not received within the allotted time, the Department's assessment will be considered to be correct as issued and collection actions will resume.
The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's website. If you have any questions regarding this determination, you may contact ***** at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/655.D