April 30, 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 “Taxpayers”) for the taxable year ended December 31, 2014.
FACTS
The Taxpayers, a husband and wife, were residents of ***** (“State A”) prior to the 2013 taxable year. The Taxpayers moved to Virginia in 2013 and filed a Virginia part-year resident income tax return for the 2013 taxable year. The Taxpayers also filed a Virginia part-year resident income tax return for the 2014 taxable year. The Department's auditor examined the consecutive part-year returns and determined that the Taxpayers were Virginia residents for the entire 2014 taxable year. The auditor adjusted the 2014 return and issued an assessment. The Taxpayers appeal, contending the wife was a resident of State A, and income from the sale of her business in 2014 should not be subject to Virginia income taxation.
DETERMINATION
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 domicile, and 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 their appeal, the Taxpayers claim that the wife was a resident of State A. To support their claim, the Taxpayers assert that the wife did not receive a Virginia driver's license until March 2014, and she could not be considered a resident before that date. Additionally, the Taxpayers argue that the wife spent a majority of her time in State A during 2014 and, therefore, should be considered a resident of State A for the 2014 taxable year. As evidence of their connections and time spent in State A, the Taxpayers provided pediatric doctor and vet bills from State A in 2014.
The wife also engaged in a number of actions consistent with changing her domicile to Virginia. The Taxpayers filed a 2013 Virginia part-year resident income tax return indicating an intent to be domiciled in Virginia. They have continued to file Virginia resident returns in 2015 and 2016. The Taxpayers established a permanent place of abode in Virginia and used this address to file their federal returns. In addition, both Taxpayers obtained Virginia driver's licenses and registered motor vehicles in Virginia in 2014.
Although the Taxpayers argue that the wife could not be considered a Virginia resident before she obtained a Virginia driver's license, that contention is not correct. According to numerous Virginia court cases, changing domicile is a two-step process. First, a person must intend to permanently move away from one domicile. Second, the person must acquire a new domicile where he intends to remain permanently or indefinitely. See Robert H Talley v. Commonwealth of Virginia, 127 Va. 516, 103 S.E. 612 (1920), State-Planters Bank v. Commonwealth of Virginia, 174 Va. 289, 6 S.E.2d 629 (1940), and Barbara B. Woods v. Commonwealth of Virginia, Circuit Court of Wise County and the City of Norton, Law No. 97-422 (3/20/2002). Where a change of domicile has clearly been established through the preponderance of the evidence, the Department will generally consider a change to have occurred toward the beginning of the process.
The Taxpayers leased a residence when they moved to Virginia in 2013, and they filed a part year resident return. By the Taxpayers own admission in their appeal, the move to Virginia was intended to be permanent but subsequent extenuating circumstances dictated otherwise. Although it is unclear if the wife spent enough nights in Virginia to be considered an actual resident, she expressed a clear intent to establish domiciliary residency in Virginia. Her intent was confirmed by her actions when she continued to acquire additional ties to Virginia throughout 2014.
Additionally, the letter of intent for the sale of the wife's business does not support the Taxpayers' contention that the wife's income from the sale of the business located in State A occurred before she obtained her Virginia driver's license. A letter of intent, as indicated in the language of the document, outlines the intentions of the parties but does not constitute a legally binding agreement to consummate the transaction.
After carefully considering the information provided, the Department concludes that the Taxpayers have failed to prove that the wife was not a Virginia resident for the 2014 taxable year. Because the Taxpayers were required to file a Virginia full-year resident income tax return, the Department was correct in issuing the assessment. The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayers, however, may have information that better represents their Virginia income tax liability for the taxable year at issue. Therefore, they should file a 2014 Virginia resident income tax return to reflect more accurately their 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 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/1578.C