July 17, 2018
Re: § 58.1-1821 Application: Individual Income Tax
This will reply to your letter in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayers”) for the taxable year ended December 31, 2014. I apologize for the delay in responding to your appeal.
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 2014 taxable year. A review of the Department’s records showed the Taxpayers had not filed a return. The Department requested information from the Taxpayers to determine whether their income was subject to Virginia income tax. In response, the Taxpayers claimed that they were exempt from Virginia income tax under the Servicemembers Civil Relief Act (the “Act”) because the husband was a military service member stationed in Virginia and they were both domiciliary residents of ***** (State A).
The Department requested additional information from the Taxpayers regarding their State A domicile. When additional documentation was not received, the Department concluded that the Taxpayers were taxable as domiciliary residents of Virginia and issued an assessment. The Taxpayers appealed, contending they were exempt from Virginia income tax under the Act.
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 they intend to return even though they may reside elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon their 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 their 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 their 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 Act, codified at 50 U.S.C. § 3901 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).
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).
While the husband retained his voter’s registration in State A, he did not participate in any state or local elections. The Taxpayers assert that they maintained a permanent address in State A, but State A records do not show the ownership of any real property. In contrast, the husband obtained a Virginia driver’s license in 2013, registered his vehicles in Virginia and rented a personal residence in Virginia following his retirement from military service.
In United States v. Minnesota, the court observed that the Act could not prohibit a state from looking at factors, such as those identified above. The court observed that if a state could not look to such factors, it would give the Act a power Congress did not intend: “it would render every state [to which a service member is assigned] incapable of ever taxing the incomes of a serviceperson without the serviceperson's consent. Such a result would inherently be unfair.” See 97 F. Supp. 2d 973, at 984. Based on this understanding of the Act, the Department will consider such activities and obtaining a driver's license, registering to vote and voting in local elections, registering an automobile, and exercising other benefits or obligations of the Commonwealth in determining the residency of a military service member.
Virginia Code § 46.2-323.1 states, “No driver's license...shall be issued to any person who is not a Virginia resident.” 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 establishing or retain domiciliary residency in Virginia. See P.D. 02-149 (12/09/2002).
Virginia 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.
Likewise, Virginia Code § 46.2-600 waives the registration requirement for any vehicle located in Virginia that is registered to a nonresident service member on active duty, nonresident activated reserve or national guard member, or nonresident mobilized reserve or national guard member living in Virginia. Because a nonresident service member is not required to register a motor vehicle in Virginia, such an action shows an intent to make Virginia the service member's domiciliary residence.
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) 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 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.
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 the 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 real property and move the family. The spouse will establish a new permanent place of abode near the new duty station, enroll the children in school, and seek employment of an indeterminate duration. 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. 17-126 (6/29/2017).
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 wife established numerous connections with Virginia. The Taxpayers rented a personal residence on the military base when they arrived in Virginia in 2013. After the husband’s retirement from the military in 2016, they rented a personal residence in Virginia off the military base and continue to live there. She obtained a Virginia nursing license and has been employed continuously as such since 2013. Further, the Taxpayers’ child has resided with them in Virginia since 2013 and has attended Virginia public schools. She registered to vote in Virginia in 2014. In addition, she registered her vehicle in Virginia in 2014 and obtained a Virginia driver’s license in 2013.
As indicated above, Virginia law specifically exempts spouses of service members residing in Virginia from the requirement to obtain a Virginia driver's license. 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 requirement 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 Virginia 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 she has a physical presence and place of abode in Virginia. See Virginia 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 their domicile during the time they held and used such registrations.
The wife maintained few connections with State A during the time she resided in Virginia. As indicated above, State A land records do not show the Taxpayers had an ownership interest in a permanent place of abode during the taxable year at issue and the wife appears to have maintained no other connections to State A.
Although certain of the Taxpayers’ connections with Virginia were not established until 2016, the Department has repeatedly observed that a change in 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 on 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 the Taxpayers remained in Virginia after the service member husband’s retirement is additional evidence that they intended Virginia to be their permanent or indefinite home. If Taxpayers are only present in Virginia because of the service member’s orders and claim another state as their permanent home, it is reasonable to conclude that the Taxpayers would move back to said state upon conclusion of those orders.
After carefully considering all of the information and arguments presented, the Department finds that the Taxpayers were taxable as domiciliary residents of Virginia for the 2014 taxable year. The Taxpayers will receive an updated bill, which will include accrued interest to date. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collection actions.
The 2014 assessment was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayers may have additional information that would more accurately reflect their Virginia taxable income for the 2014 taxable year. Therefore, the Taxpayers should file a 2014 Virginia income tax return.
In light of this determination, the Taxpayers may wish to evaluate their residency for each taxable year beginning with 2013 to determine whether they should have filed a Virginia income tax return. If the Taxpayers were required to file, but fail to do so, the Department may issue assessments at any time pursuant to Virginia Code § 58.1-312.
The Code of Virginia sections, tax bulletins, 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 *****.
Craig M. Burns