June 30, 2020
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the assessment of individual income tax 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 individual 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 to determine if his income was subject to Virginia income tax. Based on the information received, the Department determined that the Taxpayer was taxable as a Virginia resident and issued an assessment. The Taxpayer appeals, contending he was a resident of ***** (“State A”) and exempt from Virginia income taxation pursuant to the Servicemembers 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 she intends to return even though she may reside elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon her 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 her 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 her 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. 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) was enacted to provide 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.”
Similarly, in Virginia Tax Bulletin (VTB) 10-1 (1/29/2010), the Department explained that the domicile of a military spouse must be the same as the service member in order to be exempt from Virginia’s income tax. The determination of a military spouse’s domicile requires analysis of the facts and circumstances. The elements that may be examined include:
- Whether the person claiming the exemption is married to a service member who is present in Virginia pursuant to military orders.
- The service member’s domicile.
- The spouse’s domicile and the circumstances in which it was established.
- The extent to which the spouse has maintained contacts with the domicile.
- Whether the spouse has taken any actions in Virginia that are inconsistent with maintaining a domicile elsewhere.
In determining domicile, the Department will generally consider 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 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).
The Department has typically found that when a spouse moves to follow military personnel to a new duty station, they will generally abandon their former real property and move the family. See Public Document (P.D.) 10-32 (4/8/2010). The spouse will establish a new permanent place of abode near the new duty station, enroll children in school, and seek employment of an indeterminate duration. The spouse will generally comply with jurisdictional authorities with regard to driving permits, vehicle registrations, and education requirements. The spouse will also change social, charitable and church associations. Moreover, the military service member and the spouse move with no assurance that they may move back to a former duty station.
In P.D. 15-186 (9/28/2015), the Department suggested, given the language of the Act, that certain activities conducted by a military spouse, such as the spouse’s profession or employment, income sources, permanent place of abode, enrolling children in local schools, and situs of real and tangible property, may no longer be considered to be activities associated with establishing domicile in a state. While such activities may normally be considered to be incidental to a spouse’s presence in the state as a result of the service member’s military orders, they will be considered when there appears to be an affirmative choice to make their current state of residence their domicile. See P.D. 17-126 (6/29/2017).
In addition, the Department has repeatedly stated that a change of domicile occurs as part of a process in which no single factor is dispositive. See, e.g., P.D. 10-180 (8/16/2010), P.D. 11-90 (6/2/2011), and P.D. 13-115 (6/26/2013). Therefore, more weight may be assigned to such factors to the extent any continued after the service person retired or was reassigned elsewhere from a Virginia duty station. The Department would consider the fact that any such connections continued to be evidence that a taxpayer initially intended to establish a Virginia domicile.
In general, the Department will not seek to tax the spouse of a military service member so long as the spouse maintains sufficient connections with the service member’s domiciliary state to indicate intent to maintain domicile there. Such connections would include obtaining and retaining 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 the spouse of a military service member maintains such connections, he or she would be considered to be a resident of the other state even though they work, live, and establish a place of abode in Virginia.
The Taxpayer retained significant connections with State A after his spouse was stationed in Virginia in 2010. The Taxpayer maintained a residence in State A until he sold it in 2018. He also maintained his State A voter’s registration through 2015. He maintained his State A driver’s license until November 2015 when it expired. He continued to file State A resident income tax returns with his spouse, including one for the 2015 taxable year. In addition, he explains that he obtained employment in 2015 supporting a military command headquartered in State A, knowing that it could provide him an opportunity to return to State A.
The Taxpayer also took actions indicating an intent to establish domicile in Virginia. When his spouse was first stationed in Virginia in 2010, they purchased a personal residence. They also registered vehicles in Virginia. Further, the Taxpayer obtained a Virginia driver’s license in November 2015. When his wife retired from the military in January 2016, they decided to remain in Virginia and they began filing Virginia income tax returns as residents.
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 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).
Virginia Code § 46.2-306 specifically exempts service members on active duty, their spouses, and dependent children residing in Virginia from the requirement to obtain a Virginia driver’s license when such individuals have been licensed as drivers under the laws of their home state. Accordingly, when a service member or spouse obtains a Virginia driver’s license, the Department considers the action to be an indication of an intent to change one’s domicile. The Department, however, may give the driver’s license factor less weight in such cases if the service member or spouse provides evidence that they are no longer entitled to hold a driver’s license in the home state, or that it was impossible or impractical to do so.
In this case, the Taxpayer asserts that he was unable to return to State A to renew his license, but it appears that State A has options to renew licenses online or through the mail, in addition to allowing both civilian and military drivers to extend their driver’s licenses for a period of time if they have to be physically present in State A to renew their licenses. The Department has observed that other states make similar accommodations for service members and their families. It is incumbent upon the individual to be aware of the driving privileges permitted by their home state.
As stated above, a change of domicile requires both the abandonment of the previous domicile with no intention to return, plus the establishment of the new domicile with physical presence and the intention to remain permanently. Although the Taxpayer took sufficient steps to establish a Virginia domicile, the facts indicate that he had not yet abandoned his State A domicile as of 2015, so no change of domicile had occurred yet. Because he had not changed his domicile, his domicile remained State A. Further, the Act protected him from being subject to income tax in Virginia on an actual residency basis as the spouse of a military service member stationed in Virginia. The assessment, therefore, will be abated. The Department’s records indicate that the assessment was paid. Accordingly, a refund will be issued.
The Code of Virginia sections, tax bulletin 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/3333.M