May 22, 2018
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 assessments issued to ***** (the “Taxpayer”) for the taxable years ended December 31, 2012 and 2013. I apologize for the delay in responding to your appeal.
FACTS
The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia individual income tax return for the 2012 taxable year. The Department requested additional information from the Taxpayer to determine if the Taxpayer's income was subject to Virginia income tax. In response, the Taxpayer claimed she was the wife of a military service member domiciled in ***** (State A) and exempt from Virginia income tax. The Department, however, concluded the Taxpayer did not maintain sufficient connections with the service member's domicile to qualify for the exemption and issued assessments for both taxable years. The Taxpayer filed an appeal, contending she shared the same residency as her spouse.
DETERMINATION
Residency of a Military Spouse
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Virginia 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.
The Servicemembers Civil Relief Act, codified at 50 U.S.C. § 3901 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) 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, however, 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).
In general, the Department will not seek to tax an active duty military service member or spouse so long as the service member or spouse 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 and spouse maintain 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).
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 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. See P.D. 16-136 (6/24/2016).
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 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 connections 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 a number of connections with Virginia beginning in 2011. After arriving in Virginia, the Taxpayer and her spouse established a permanent place of abode and she took a permanent job in Virginia. In addition, she obtained a Virginia driver's license after her license from ***** (State B) had been revoked. She also registered a motor vehicle in Virginia in 2013.
The Taxpayer maintains she had to get a Virginia driver's license in order to get to her job 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.
The Taxpayer asserts she intended to maintain her domicile in State A, the same as her service member spouse. As evidence, the Taxpayer provided a number of documents. While birth certificates, diplomas college transcripts can be indication of residency, the mere fact that an individual was born and went to school in a state has little bearing on whether such individual intends to return there.
A copy of a rental lease dated from December 2011 through December 2014 was also provided as proof of intent to reside in State A. The tenants on the lease included the Taxpayer and another person who was not her spouse, raising questions as to whether she was helping a relative or friend. However, the Taxpayer's primary source of wage income was derived from working in Virginia near her spouse during both 2012 and 2013.
Further, a military spouse who is a State A resident and plans to return to a permanent home in that state is required to include income earned in another state on a State A income tax return. The military spouse is prohibited from claiming a credit for the income taxes paid to another state. The Taxpayer has provided no evidence that she filed State A income tax returns as a resident for the 2012 and 2013 taxable years.
In addition, actions taken by the Taxpayer while residing in State B raise questions as to whether she abandoned her State A domicile prior to moving to Virginia. The couple moved to State B in 2003 where they purchased a home, and the Taxpayer obtained a State B driver's license after her State A license was suspended.
Credit for Taxes Paid to Another State
Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia return for income taxes paid to another state provided the income is either earned or business income or gain from the sale of a capital asset. Virginia law does not necessarily allow a taxpayer to claim a credit for the total amount of tax paid to another state. Rather, the credit is limited to the lesser of the amount of tax actually paid to the other state or the amount of Virginia income tax actually imposed on the taxpayer on the income earned or derived in the other state. See P.D. 97-301 (7/7/1997). The limitation is computed by multiplying the individual's Virginia tax liability by a fraction, the numerator of which is the income upon which the other state's tax is imposed, and the denominator of which is Virginia taxable income.
As indicated above, a military spouse who is domiciled in State A is required to file a resident income tax return. In addition, the Taxpayer earned income from wages in State B, winnings from gambling in State A, and income from the cancelation of a debt during 2012 and 2013. If the Taxpayer filed returns and paid income tax to State A or State B in accordance with each state's statutes, she may have been eligible for a tax credit for income tax paid to another state.
CONCLUSION
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 she was not subject to income tax in Virginia. In this case, the Taxpayer has not proven that she intended to remain a domiciliary resident of State A and did not become a domiciliary resident of Virginia. Accordingly, the assessments are upheld.
The assessments were made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. Thus, the Taxpayer may have additional information that may reflect more accurately her tax liability. Therefore, the Taxpayer may wish to file resident returns to include such information. The returns should be mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attention: *****, P.O. Box 27203, Richmond, Virginia 23218-7203. A copy of this determination letter should be attached to your submission. Once the returns are received, they will be processed and the assessment will be adjusted accordingly. If the returns are not filed within 45 days of the date of this letter, the 2012 and 2013 assessments will be considered correct and collection action will resume.
In addition, when the service member was discharged from service in 2014, the couple was no longer eligible for the protections afforded under the Act. It is recommended, therefore, that the Taxpayer and her spouse review their residential status for the 2014 through 2016 taxable years and file the appropriate Virginia income tax returns.
The Code of Virginia sections, public documents, and tax bulletin 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/1183.o