July 29, 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 assessments issued to ***** (the “Taxpayer”) for the taxable years ended December 31, 2015, and 2016.
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. Based on the documentation received and other information available to the Department, the Department determined that the Taxpayer remained taxable as a domiciliary resident of Virginia for the 2015 taxable year.
In addition, the Taxpayer filed a resident Virginia income tax return for the 2016 taxable year and claimed a credit for income tax paid to West Virginia. Under review, the Department denied the credit and issued an assessment. The Taxpayer appealed, contending she was not subject to Virginia income tax in 2015 because she was a resident of West Virginia. The Taxpayer also contends that she was eligible to claim the credit for income tax paid to West Virginia on her 2016 return.
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 performed some actions indicating that she intended to establish domicile in West Virginia. She sold her personal residence in Virginia in February 2014 and began employment in West Virginia in June 2014, at which time she also purchased a new personal residence in West Virginia.
The Taxpayer, however, also retained significant connections with Virginia. She retained her Virginia driver’s license and motor vehicle registration, and she used her Virginia voter’s registration to vote in a Virginia election in November 2014, after she claims she had begun residing in West 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).
With regard to Virginia voter’s registrations, Article II, Section 1 of the Constitution of Virginia states in relevant part as follows:
In elections by the people, the qualifications of voters shall be as follows: Each voter shall be a citizen of the United States, shall be eighteen years of age, shall fulfill the residency requirements set forth in this section, and shall be registered to vote pursuant to this article.
The residence requirements shall be that each voter shall be a resident of the Commonwealth and of the precinct in which he votes. Residence, for all purposes of qualification to vote, requires both domicile and a place of abode.
The domicile and place of abode requirement found in the Constitution of Virginia is also reflected in the definition of “residence” or “resident” used in Virginia election statutes. See Virginia Code § 24.2-101.
Although the sale of a primary personal residence is normally considered strong evidence of intent to abandon the domicile where that residence was located, the significance of that factor is reduced in this case because of the other connections the Taxpayer retained with Virginia. In particular, the Department considers the continued exercise of voting privileges in Virginia to be very strong evidence of intent to retain a Virginia domicile. See Cooper’s Adm'r v. Commonwealth, 121 Va. 338, 348, 93 S.E. 680, 683 (1917).
The Department acknowledges that a change of domicile occurs as part of a process in which no single factor is dispositive. After carefully considering all of the evidence presented, I find that regardless of the connections the Taxpayer established in West Virginia, she has failed to prove she intended to abandon her Virginia domicile because of the connections she retained with Virginia.
Out-of-State Credit
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.
The Taxpayer filed her 2016 Virginia individual income tax return as a resident for the entire year and claimed a credit for income tax paid to West Virginia. Based on the analysis above, the Taxpayer was correct in filing as a Virginia resident for the entire 2016 taxable year even though she resided in West Virginia until February 2016. The Department, however, denied the credit for income tax paid to West Virginia on the basis that the Taxpayer was not subject to West Virginia income tax under the reciprocal agreement that Virginia has with West Virginia (the “Agreement”).
Section II A 2 of the Agreement states:
No West Virginia employer shall be required to withhold West Virginia income tax from compensation paid in West Virginia to a domiciliary resident of Virginia who files with his employer a certificate of nonresidence unless and until such employer is advised that any such certificate was improperly filed.
Similarly, Section II B 2 of the Agreement states:
No Virginia domiciliary resident who signs a West Virginia certificate of nonresidence shall be required to pay West Virginia income tax or file a West Virginia income tax return on compensation paid in West Virginia.
In this case, there is no indication the Taxpayer signed such a certificate of nonresidence. If the Taxpayer believed she was not a domiciliary resident of Virginia, West Virginia income tax continued to be withheld from the Taxpayer’s wages while she worked in West Virginia. Therefore, the Agreement did not apply, and the Taxpayer remained subject to West Virginia income tax on the income earned in West Virginia in 2016.
CONCLUSION
As stated above, I find that the Taxpayer remained taxable as a domiciliary resident of Virginia for the 2015 taxable year. The 2015 assessment 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 her Virginia income tax liability for the 2015 taxable year. Therefore, the Taxpayer should file a 2015 Virginia resident income tax return. The Taxpayer may claim a credit for income tax paid to West Virginia 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 23161-7203, Attention: *****. Upon receipt, the return will be reviewed and the assessment will be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be considered to be correct.
In addition, because the provisions of the Agreement were not met, the Taxpayer was eligible to claim a credit for income tax paid to West Virginia on her 2016 Virginia resident income tax return to the extent permitted by Virginia Code § 58.1-332. The 2016 assessment will be adjusted accordingly.
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/1913.M