September 6, 2018
Re: § 58.1-1824 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you request refunds of individual income tax paid by ***** (the “Taxpayer”), for the taxable years ended December 31, 2014 through 2016.
FACTS
The Taxpayer, a military service member, filed Virginia resident income tax returns for each of the 2014 through 2016 taxable years. The Taxpayer subsequently filed for refunds of all Virginia income tax withheld, claiming he was not a resident of Virginia during any of the taxable years at issue.
DETERMINATION
Protective Claim
Pursuant to the authority granted the Department under Virginia Code § 58.1-1824, a protective claim for refund can be held pending the outcome of another case before the courts or the claim may be decided based upon its merits pursuant to Virginia Code § 58.1-1821. As permitted by statute, the Taxpayer’s request has been treated as an appeal under Virginia Code § 58.1-1821.
Domicile
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.
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 Department must conclude that he or she intended to remain indefinitely in Virginia.
Residency of a Military Service Member
The Servicemembers Civil Relief Act (the “Act”) provides that military and naval personnel do not abandon their legal domicile solely by complying with military orders that station them in a different state or country whether permanently or temporarily. See 50 U.S.C. § 4001. 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) (hereinafter, “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).
The Taxpayer, a Virginia resident, entered military service and was assigned to various duty stations in ***** (State A), ***** (State B) and ***** (State C) during the taxable years at issue. He leased a personal residence in State B from February 2016 to December 2017 and a personal residence in State C from December 2017 through July 2018.
The Taxpayer also retained connections with Virginia. He continued to hold a Virginia driver’s license and maintained a Virginia vehicle registration using his parents’ Virginia address. He was also registered to vote in Virginia but had not voted in a Virginia election since 2011.
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 establish or retain domiciliary residency in Virginia. See P.D. 02-149 (12/09/2002).
The Department concedes that the income taxation of military service members is a unique policy area which has some challenging and confusing concepts. For example, service members frequently confuse the term “home of record” with domicile. As the Department has previously observed, however, 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.
In addition, some military service members have attempted to argue that the Act prevents states from analyzing domicile factors in order to determine the service members’ proper domiciles. See, e.g., P.D. 16-136 (6/24/2016). These service members attempt to use the Act as a shield against income tax in any state except their original home of record, in the mistaken belief that the Act prevents any domicile change from occurring during their military careers, regardless of what connections they may have established in a new state, and regardless of whether any connections were maintained with the home of record. This position was expressly rejected by the federal court in Minnesota, which held that 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 F. Supp. 2d at 984.
In this case, however, the Taxpayer is effectively asking the Department to ignore the Act entirely and simply deem each different state where he was assigned to a duty station as his domicile at that time. Typically, if a military service member maintains connections with the state that was his domicile at the start of service, the taxpayer will contend that those connections, together with the protections of the Act, means he did not change domicile merely by residing in different states to which he was assigned new duty stations. Such cases typically involve a taxpayer’s claim of domicile to a state that was the original home of record. See, e.g., P.D. 10-237, P.D. 13-161 (8/13/2013), P.D. 17-126 (6/29/2017) and P.D. 18-48 (4/16/2018). Sometimes, it had been decades since the taxpayer actually resided in that state, as in P.D. 17-126 and P.D. 18-48.
The Taxpayer’s position seems to originate from a misunderstanding of Virginia law. The Taxpayer claims in his appeal letter that the Code of Virginia defines nonresidents as those that do not live in Virginia for 183 days or more. In fact, Virginia Code § 58.1-302 defines a resident, for Virginia individual income tax purposes, as “every person domiciled in Virginia at any time during the taxable year and every other person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia, whether domiciled in Virginia or not.” [Emphasis added.] Thus, the Code of Virginia, as explained above, creates two classes of Virginia residents subject to income tax: domiciliary residents and actual residents. Nonresidents are those individuals who are neither domiciliary residents nor actual residents. Therefore, the Taxpayer is not correct in saying that a nonresident is defined only as a person who did not spend 183 days or more in Virginia, i.e., a person who was not an actual resident. A taxpayer who has failed to change his domicile from Virginia under the legal standard set forth above remains subject to Virginia income tax as a domiciliary resident even though he may not have been physically present in Virginia during the taxable year at issue.
The Taxpayer has not shown any evidence indicating he took sufficient steps to establish domicile in any other state where he was stationed pursuant to military orders. Even if he had, he failed to cancel Virginia connections in order to prove his intention to abandon his Virginia domicile.
CONCLUSION
In this case, the Taxpayer has failed to prove that he either established domicile in another state or abandoned his Virginia domicile for any part of the 2014 through 2016 taxable years. Therefore, the Taxpayer remained taxable as a domiciliary, though not actual, resident of Virginia for those years. Accordingly, the Taxpayer’s request for refunds of Virginia income tax paid for the 2014 through 2016 taxable years cannot be granted.
The Code of Virginia sections 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/1667.M