April 3, 2018
Re: § 58.1-1821 Appeal: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayer”) for the taxable year ended December 31, 2014. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer, a resident of Virginia, lived and worked in Maryland during the 2014 taxable year. The Taxpayer's employer withheld Maryland income tax, and the Taxpayer filed a Maryland individual income tax return. The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia income tax return for the 2014 taxable year. Because no return was on file, the Department requested additional information in order to determine if the Taxpayer's income was taxable in Virginia. When the Taxpayer did not respond with sufficient information, the Department issued an assessment. The Taxpayer appealed, contending he was a Maryland resident and not subject to Virginia income tax.
DETERMINATION
Residency
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 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, voter's registration, 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. See Virginia Code § 58.1-205. If the information is inadequate to meet this burden, the Department must conclude that he or she intended to remain indefinitely in Virginia.
In his appeal, the Taxpayer states that he was a resident of Maryland. The Taxpayer performed several actions indicating an intent to change his domicile. The Taxpayer rented an apartment in Maryland, obtained a renter's insurance policy for the Maryland apartment, provided income tax withholdings to Maryland, and filed a Maryland resident income tax return.
The Taxpayer, however, maintained significant connections with Virginia. The Taxpayer had vehicles registered in Virginia, maintained his voter's registration in Virginia, and maintained his driver's license in Virginia. Additionally, the Taxpayer was a resident of Virginia for all previous and subsequent taxable years to the one at issue.
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 a strong indicator of intent to retain domiciliary residency in Virginia. See P.D. 02-149 (12/9/2002). The Department's records indicate that the Taxpayer obtained a Virginia driver's license in 2009, retained it throughout 2014, renewed it in 2017, and continues to hold it.
In addition, the Taxpayer was registered to vote in Virginia during the taxable year at issue. The Department has found voter registration statutes do not precisely mirror residency as it applies to income tax. Under Virginia Code § 24.2-101, an individual qualified to vote in Virginia must be a resident of the precinct in which he offers to vote. This statute requires a resident to have both legal domicile and a place of abode in Virginia. For Virginia voting purposes, domicile is determined by the intention of the individual, supported by an individual's factual circumstances. See State Board of Elections (SBE) Policy 2009-005. See Also P.D. 17-21 (3/15/2017).
Reciprocity
Virginia Code § 58.1-342 B grants the Department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income tax when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. In addition, employers are not required to withhold Virginia income tax from resident of these states. Virginia currently has this type of agreement with Maryland, West Virginia, and Pennsylvania.
The reciprocal income tax agreement between Virginia and Maryland was most recently updated in 2006. See Virginia Tax Bulletin (VTB) 06-8 (12/27/2006). The updated agreement makes clear that reciprocity does not apply to a taxpayer who is a domiciliary resident of one state, but who maintains a place of abode and spends an aggregate of more than 183 days of the taxable year in the other state. The Taxpayer was a domiciliary resident of Virginia but maintained a place of abode and appears to have spent more than 183 days of the taxable year in Maryland.
Out-of-State Tax Credit
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, derived from sources outside Virginia, and subject to Virginia's income tax. 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.
CONCLUSION
After carefully considering the information provided, I find that that the Taxpayer has not proved that he did not maintain domicile in Virginia during the 2014 taxable year. As such, the Taxpayer remained taxable as a domiciliary resident of Virginia for the 2014 taxable year. Because of the connections established and time spent in Maryland, the Taxpayer may be considered an actual resident of Maryland and a domiciliary resident of Virginia and, therefore, subject to income taxation in both states. The Taxpayer, however, may be entitled to claim a credit for tax paid to Maryland on his Virginia return.
The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. Because the Taxpayer was required to file a Virginia income tax return, the Department was correct in issuing the assessment. The Taxpayer, however, may have information that better represents his Virginia income tax liability for the taxable year at issue. Therefore, he should file a 2014 Virginia resident income tax return to reflect more accurately his Virginia tax liability.
The return should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *****. Upon receipt, the return will be reviewed and the assessment will be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be adjusted based on the information available.
The Code of Virginia sections, Virginia Tax Bulletin, 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 about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1283.C