April 25, 2019
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, 2015.
FACTS
The Department received information from the Internal Revenue Service (IRS), indicating that the Taxpayers, a husband and wife, may have been required to file a Virginia individual income tax return for the 2015 taxable year. Because no return was on file, the Department requested additional information to determine whether the Taxpayers’ income was taxable in Virginia. When a response was not received, the Department issued an assessment. The Taxpayers appeal, contending they were both domiciliary residents of ***** (State A) pursuant to the Servicemember’s Civil Relief Act (the “Act”).
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 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 Act, codified at 50 U.S.C. § 3901 et seq., provides that military personnel do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different state or country. In addition, the Act was amended, effective for the 2009 taxable year and thereafter, to address the residency of military spouses. Specifically, 50 U.S.C. § 4001(a)(2) provides that a spouse can neither lose nor acquire domicile or residence in a state when the spouse is present in the state “solely to be with the service member in compliance with the service member’s military orders if the residence or domicile, as the case may be, is the same for the service member and the spouse.”
The Act, however, does not preclude the possibility that armed forces personnel and their spouses may acquire a new legal domicile in the state where they are stationed, and thus subject themselves to taxation by that state as if they were a domiciliary resident. In determining domicile, the Department will generally consider the individual’s express 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 and 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 of the facts and circumstances of the particular case. A simple declaration is not sufficient to establish domicile. See United States v. Minnesota, 97 F. Supp. 2d 973 (2000).
In general, the Department will not seek to tax active duty military service members and their spouses so long as they maintain sufficient connections with another state to indicate intent to maintain domicile there. Such connections would include filing a State of Legal Residence Certificate (Department of Defense Form 2058), obtaining a driver’s license, registering to vote and voting in local elections, registering an automobile, and exercising other benefits or obligations of a particular state. As long as a military service member and their spouse maintain such connections, they would be considered to be a resident of the other state even though they work, live, and establish a permanent place of abode in Virginia. See Public Document (P.D.) 10-237 (9/30/2010).
In this case, the Taxpayers claimed to be residents of State A and provided a leave and earnings statement (LES) as evidence of their domicile. By letter dated December 27, 2018, the Department requested additional information required to determine the Taxpayers’ domicile. As of the date of this letter, no information has been received.
The information that has been obtained indicates the Taxpayers sold real property in ***** (State B) and relocated to Virginia in 2015. They both obtained Virginia driver’s licenses in 2017, surrendering driver’s licenses from ***** (State C). Additionally, although they are no longer in the armed services, they both continue to reside in Virginia. In addition, at least one of the Taxpayers appears to have filed a ***** (State D) income tax return in 2014.
The facts in this case indicate a pattern of establishing connections with states in which the Taxpayers were physically located at any particular time. Under such circumstances, it does not appear the Taxpayers intended to remain domiciled in any state that they resided in prior to moving to Virginia. Because they moved to Virginia in 2015 and have provided insufficient evidence of domiciliary residence elsewhere, the Department can only conclude the Taxpayers were residents of Virginia in 2015.
Virginia Code § 58.1-205 provides that in any proceeding related 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 Taxpayers to show that they were 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 assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. As such, the Department was correct in issuing the assessment.
The Taxpayers, however, may have information that better represents their Virginia income tax liability for the taxable year at issue. The return or additional information 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 information will be reviewed and the assessment will be adjusted, as appropriate. If no new information is received within the allotted time, the assessment will be considered correct and collection actions may result.
The Taxpayers should be aware that the Department has not received a Virginia income tax return from the Taxpayers for the 2016 taxable year and received only a part-year return for the 2017 taxable year. This is inconsistent with the Department’s findings concerning the Taxpayers’ residency status. Failure to file Virginia income tax returns for the 2016 and 2017 taxable years consistent with the Department’s findings will likely result in future contacts by the Department.
The Code of Virginia sections and public document 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/1910C