September 18, 2019
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, 2015.
FACTS
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 2015 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 her income was taxable in Virginia. When a response was not received, the Department issued an assessment. The Taxpayer appeals, contending she was a resident of Maryland.
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, 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 explains that personal circumstances caused her to leave Virginia for Maryland around 2009. It appears that she initially did not have a permanent address in Maryland until November 2012, when she began to lease a personal residence there. The Taxpayer claims that she resided in Maryland until January 2016 when she returned to Virginia, but the information provided indicates that her lease expired in October 2015.
The Taxpayer also explains that she used public transportation in Maryland until she purchased a car in 2014. It is unclear, however, whether she initially registered the car in Maryland. She did not obtain a Maryland driver’s license or voter’s registration. In 2015, she filed a part-year Maryland income tax return, reporting her period of Maryland residency from August 2015 through the end of the year. The Taxpayer listed her other state of residence as Virginia. The return, however, appears to have reported her entire income for the 2015 taxable year to Maryland. The Taxpayer also indicates that she filed Maryland income tax returns for prior taxable years, but has not provided evidence to support her statement.
Despite her claim to have been living in Maryland at the time, the Taxpayer obtained a Virginia driver’s license in 2012 and continued to maintain it during the 2015 taxable year. In a request for information, the Department specifically asked the Taxpayer why she did not obtain a Maryland license, but an explanation was not provided.
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.
In addition, in the process of reviewing the Taxpayer’s appeal, the Department requested records regarding the Taxpayer’s voting history in Virginia. The Taxpayer, however, never provided such records. The Taxpayer’s failure to provide the requested records raises an inference that the submission of such information would have been unfavorable to the Taxpayer’s appeal. Had the Taxpayer used a Virginia voter’s registration while residing in Maryland, it would have been strong evidence of intent to retain a Virginia domicile.
As stated above, the Taxpayer has the burden of proving that she abandoned her Virginia domicile. Some of the Taxpayer’s arguments are contradictory to the evidence, and the Taxpayer has failed to provide evidence for a number of her arguments. The Taxpayer obtained a Virginia driver’s license after she claims to have established residency in Maryland. She also failed to provide records regarding her Virginia voter’s history as requested. Both driver’s licenses and use of voter’s registrations are factors that are strong indicators of intent to retain domiciliary residency. Accordingly, I find that the Taxpayer has failed to meet her burden of proving that she abandoned her Virginia domicile.
Credit for Taxes Paid to 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. 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 Maryland, all residents are required to file a resident income tax return. Maryland defines a resident as an individual who is in the state for other than a temporary or transitory purpose during the taxable year. The Taxpayer filed individual returns and paid income tax to Maryland during the taxable years at issue in accordance with Maryland statutes. Under these circumstances, she may have been eligible for a tax credit for income tax paid to Maryland.
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 residents 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.
CONCLUSION
After carefully considering all of the evidence presented, I find that the Taxpayer has failed to prove that she abandoned her Virginia domicile. Therefore, she remained taxable as a domiciliary resident of Virginia for the 2015 taxable year.
The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code 58.1-111. The Taxpayer, however, may have information that better represents her Virginia income tax liability for the taxable year at issue. Therefore, she should file a 2015 Virginia resident income tax return and claim credit for income tax paid to Maryland to the extent permitted by Virginia Code § 58.1-332. 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, Attention: *****. The return will be reviewed and processed, and the assessment will be adjusted as warranted. If the return is not received within the allotted time, the assessment will be adjusted based on the available information.
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/1922.A