October 4, 2018
Re: § 58.1-1821 Application: 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, 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 to determine if his income was taxable in Virginia. Based on the information received, the Department determined that the Taxpayer was a Virginia resident for the 2015 taxable year and issued an assessment. The Taxpayer appeals, contending he was a resident of ***** (State A).
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.
The information provided indicates the Taxpayer remained a domiciliary resident of State A in 2015, but maintained a place of abode in Virginia for more than 183 days. As indicated above, the Taxpayer would be considered to be a resident of Virginia for income tax purposes.
Credit for Tax Paid to Another State
Virginia Code § 58.1-332 A allows a Virginia resident who has become liable for and paid an income tax in another state to claim a credit on their Virginia return provided the income is either earned or business income or gain from the sale of a capital asset and is derived from sources outside of Virginia and subject to Virginia’s income tax.
The information provided indicates the Taxpayer paid income tax to State A in 2015, and his income was sourced to the ***** (State B), not Virginia. Therefore, he was eligible to claim a credit for income tax paid to State A per Virginia’s statutes.
The Taxpayer should be aware that 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 outside of Virginia. 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
The Taxpayer was an actual resident of Virginia for the 2015 taxable year because he maintained a place of abode in Virginia for 183 days or more. As such, the Taxpayer’s income was subject to Virginia income tax, and the Department was correct in issuing an assessment.
The assessment at issue was 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 his Virginia income tax liability for the taxable year at issue, including a credit for tax paid to State A. Therefore, he should file a 2015 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: *****. The return will 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 information provided.
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/2018C