May 2, 2018
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessments issued to ***** (the “Taxpayers”) for the taxable years ended December 31, 2013, and 2014.
FACTS
The Taxpayers, a husband and a wife, filed joint Virginia resident individual income tax returns for the 2013 and 2014 taxable years, in each case subtracting a portion of their federal adjusted gross income (FAGI) in the computation of Virginia taxable income (VTI). The Department denied the subtractions and issued assessments. The Taxpayers appealed, contending the husband was a resident of ***** (Country A).
DETERMINATION
Subtraction
Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of VTI with FAGI. Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Virginia Code § 58.1-322. A resident of Virginia includes any natural person domiciled in Virginia at any time during a taxable year or who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia.
For each of the taxable years at issue, the Taxpayers claimed subtractions for the husband's wages earned overseas. At one time, Virginia Code § 58.1-322 provided a subtraction from FAGI for certain foreign source income. However, the General Assembly specifically repealed the subtraction effective for taxable years beginning on and after January 1, 2003. Therefore, the subtractions were properly denied.
As stated above, if the Taxpayers were Virginia residents, they would have been subject to tax on all of their income, regardless of the source. On appeal, however, the Taxpayers now contend that the husband was a resident of Country A.
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 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, 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.
The Taxpayers explain that the husband received an assignment overseas and moved all of his personal belongings, including his vehicle, to ***** (State A). They state that the vehicle was insured in State A at a higher rate than they would have paid in Virginia. They also state that mail was sent to a family member in State A. In addition, the Taxpayers claim that the wife returned to Country A, their place of permanent residence.
The Department's records indicated that the Taxpayers filed a joint Virginia part-year resident income tax return for the 2012 taxable year and resident returns for each of the 2013, 2014 and 2015 taxable years. The husband also obtained a Virginia driver's license. These facts, while not determinative, raise an inference that the Taxpayers established domicile in Virginia.
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 to be a strong indicator of intent to retain domiciliary residency in Virginia. See P.D. 02-149 (12/9/2002).
The Taxpayers' appeal raises some questions concerning the husband's residency status. By referring to connections with State A, it appears that the Taxpayers may have been trying to argue they changed their domicile to State A. The Taxpayers, however, also referred to Country A as their permanent residence. A full explanation of the husband's connections with Country A was not provided.
In addition, the information provided suggests that the husband's overseas assignment was temporary in nature. The Department has repeatedly ruled that individuals generally lack the intent to abandon their Virginia domicile when they engage in temporary employment outside the Commonwealth. See P.D. 86-219 (11/3/1986), P.D. 94-353 (11/23/1994), P.D. 96-207 (8/26/1996), P.D. 02-33 (3/13/2002), P.D. 05-8 (2/1/2005), P.D. 10-134 (7/12/2010) and P.D. 16-39 (3/31/2016).
Further, the Taxpayers argue that because a taxpayer is presumed under Title 23 of the Virginia Administrative Code (VAC) 10-110-30 not to have abandoned his Virginia domicile if he returns to Virginia to reside within six months, the fact the husband was absent from Virginia for nine months supports his intent to abandon his Virginia domicile. Although the length of absence from a jurisdiction is a relevant factor to consider in any domicile case, that regulation does not create a presumption that a taxpayer who lived and worked outside of Virginia longer than six months changed his domicile.
In order to resolve these outstanding questions and obtain the information necessary to make a proper determination of the Taxpayers' residency status, the Department requested additional information from the Taxpayers by letters dated June 20, 2017, and November 2, 2017. To date, the Taxpayers have failed to respond to the information requests.
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 he was not subject to income tax in Virginia. Furthermore, Virginia Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the erroneous assessment is attributable to the taxpayers’ willful failure or refusal to provide the Department with necessary information as required by law.
The Department's request of November 2, 2017, expressly advised that failure to provide information would likely result in an adverse determination being made. The request also cited Virginia Code § 58.1-1826. Based on the foregoing, the assessments are upheld. The Department's records indicate that the assessments have already been satisfied in full by collection actions. Therefore, no further action is required.
The Code of Virginia sections, regulation, 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/1316.M