Document Number
18-90
Tax Type
Individual Income Tax
Description
Residency, Credit, Domicile, Tax Paid to Another State, Change of Domicile
Topic
Appeals
Date Issued
05-18-2018

 

May 18, 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 assessment issued to ***** (the “Taxpayer”) for the taxable year ended December 31, 2013. I apologize for the delay in responding to your appeal.

 

FACTS

 

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia individual income tax return for the 2013 taxable year.  A review of the Department's records showed that the Taxpayer had not filed a return.  The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia.  The Taxpayer did not respond within the allowed time and an assessment was issued.  The Taxpayer appeals, contending he was a resident of Pennsylvania who had earned all of his income working in Delaware.

 

DETERMINATION

 

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 Taxpayer obtained employment in Delaware in 2012.  He began leasing a personal residence in Pennsylvania in August 2012.  The Taxpayer filed a Delaware resident income tax return for the 2013 taxable year.  However, the Taxpayer did not obtain a driver's license or vehicle registration in Delaware or Pennsylvania, and he did not register to vote in either Delaware or Pennsylvania.  He filed Virginia part-year resident returns for the 2012 and 2014 taxable years.

 

The Taxpayer explains that he moved to Pennsylvania to accept a job located nearby in Delaware.  As such, although he filed his 2013 federal and Delaware income tax returns with a Virginia address, his Form W-2 was sent to his Pennsylvania address, and it reported Delaware income tax withholding. 

 

The Taxpayer also retained connections with Virginia.  He maintained a Virginia driver's license since January 2009 and renewed it in March 2017.  He acquired and registered a vehicle in Virginia in June 2013.  The Taxpayer both registered to vote and voted in Virginia in 2008.  He moved back to the same residence in Virginia he lived in prior to leasing the residence in Pennsylvania.

 

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 fact that an individual has a Virginia driver's license is one factor to consider, among other possible factors, in any given domicile case. Nonresidents are not permitted to hold Virginia driver's licenses.  See Virginia Code § 46.2-323.1.  They are, however, permitted to continue to use their licenses from their home states or countries.  See Virginia Code § 46.2-307.  For the purposes of Title 46.2 of the Code of Virginia, “nonresident” is generally defined as every person who is not domiciled in the Commonwealth.  See Virginia Code § 46.2-100.  Thus, in general, an individual must be a domiciliary resident of Virginia in order to hold a Virginia driver's license.

 

Individuals who have resided in Virginia more than six months, however, are deemed to be residents for purposes of applying most of the provisions of Title 46.2 of the Code of Virginia, including the driver's licensing provisions of Title 46.2, Chapter 3 (Virginia Code § 46.2-300 et seq.).  In addition, because an individual who has been physically present and residing in Virginia for more than six months may nevertheless remain a domiciliary resident of another state or country, it may be necessary in such cases to examine additional factors to determine whether a person who has obtained a driver's license based on physical presence and actual residency in Virginia also intended to become a domiciliary resident of Virginia. However, once it is clear that an individual has established domiciliary residency in Virginia, subsequent renewals of a Virginia driver's license even while absent from the state will be considered very strong evidence of the individual's intent to remain a domiciliary resident of Virginia.  That is because the basis of the individual's claim to be entitled to a Virginia driver's license would no longer be based on the length of time he was physically present in Virginia as an actual resident, but rather on the implication that he remained a domiciliary resident of Virginia. 

 

The Department acknowledges that a change of domicile occurs as part of a process in which no single factor is dispositive.  The Department recognizes that a taxpayer may originally intend to establish a permanent residence in another state and abandon their previous domicile, but circumstances may occur unexpectedly that require a taxpayer to return to the previous domicile.  However, in this case it does not appear that the Taxpayer intended to remain in Pennsylvania indefinitely because no evidence has been provided to show that the employment in Delaware was permanent. Furthermore, the Taxpayer retained extensive ties to Virginia.

 

Because the Taxpayer maintained his Virginia driver's license, automobile registration and voter registration, and provided no evidence of intent to remain in Pennsylvania, he has failed to show that he established domicile in Pennsylvania with the intent to live there permanently and indefinitely.  Until intent can be established by circumstances indicating a permanent change of domicile, the Department must conclude a change has not occurred.  As such, the Taxpayer was a domiciliary resident of Virginia for the 2013 taxable year and was liable for Virginia income tax.

 

Credit for Tax Paid in another State

 

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.

 

In this case, the Taxpayer paid individual income tax to Delaware.  Because the income was primarily earned from sources outside Virginia, the Taxpayer would be eligible to claim the credit pursuant to Virginia Code § 58.1-332 A for the tax paid to Delaware on earned or business income on a Virginia resident income tax return.

 

The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111.  The Taxpayer may have information that better represents his Virginia income tax liability for the year at issue.  Therefore, the Taxpayer should file a 2013 Virginia resident income tax return.  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 assessment will be adjusted, as appropriate.  If the return is not received within the allotted time, the assessment will be revised based on the copy of the Delaware income tax return provided with the appeal.

 

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/1312.B

 

Rulings of the Tax Commissioner

Last Updated 06/11/2018 09:24