March 6, 2020
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek reconsideration of the Department’s determination letter issued as Public Document (P.D.) 19-67 (6/25/2019).
FACTS
In P.D. 19-67, the Department upheld an assessment against the Taxpayers when they failed to respond to multiple requests for information. The Taxpayers have provided some additional information and request that the Department reconsider its determination.
ANALYSIS
Reconsideration
Title 23 of the Virginia Administrative Code (VAC) 10-20-165 F provides that a taxpayer who disagrees with the Department’s final determination issued pursuant to Virginia Code § 58.1-1822 may request a reconsideration of the determination. In order for the Department to grant a request for reconsideration, the request must be received by the Department no later than 45 days after the date of the determination letter, and the taxpayer must meet one of four specific requirements set forth in that section.
The Taxpayers must demonstrate that the original determination misstated the facts presented in the appeal, or the policies used in making the determination changed, or documentation that was not available to the Taxpayers at that time the determination was made available. Because the Taxpayers have presented evidence that was not available during the original review, the Department will review its determination findings.
Residency
As the Department stated in P.D. 19-67, the Department sought more information in order to determine whether or not the Taxpayers established domicile in Virginia. If they established domicile, the Taxpayers would have been subject to Virginia income tax from the time they established domicile in Virginia until the time they abandoned such domicile. If they moved into Virginia for the first time in 2015, established domicile and kept the domicile for the remainder of the year, they would have been subject to Virginia income tax as part-year residents from their move-in date to the end of the year, regardless of the wife’s active duty military status.
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 proof that an individual has abandoned or failed to establish domicile in Virginia rests with the individual. See Title 23 VAC 10-110-30 B 3.
The Taxpayers moved from ***** (State B) to Virginia in May 2015. The husband was retired from the military and the wife was not on active duty orders at that time. The wife obtained a Virginia driver’s license and they registered several vehicles in Virginia. Initially, the wife was employed in State B and ***** (State C). In November 2015, the wife began employment in Virginia that was considered an active duty military assignment. The husband was also employed for a time in State C but became a full-student while the wife was on active duty. The Taxpayers purchased a personal residence in Virginia in 2016 after initially leasing one. The Taxpayers continued to live in Virginia until June 2017, at which time the wife obtained employment in ***** (State A).
The Taxpayers argue that their intent was always to return to State A, and they retained as much presence there as they could while the wife was employed in Virginia. The husband continued to hold a State A driver’s license and the wife registered to vote in State A in 2016. They also claim they maintained a personal residence in State A, and State A was the home of record for each of them.
The Taxpayers continue to rely on the fact that State A was the wife’s home of record and had also been the husband’s home of record prior to retiring from the military. The Department has addressed the distinction between domicile and home of record a number of times, including in P.D. 19-67. See also P.D. 16-136 (6/24/2016), P.D. 17-97 (6/12/2017) and P.D. 18-162 (9/6/2018). A service member’s “home of record” refers to the state from which a service member entered the military. Its primary purpose is determining military benefits such as travel entitlements upon separation from service. Depending on the circumstances, a service member’s state of legal domicile and home of record might be the same. That is not true, however, for all service members. A change of domicile results from the establishment of a new residency in fact, coupled with an intent to abandon the old domicile and remain in the new, regardless of what state is listed as the home of record. Even for active duty military service members, their “home of record” may have little, if anything, to do with what is their current state of domicile. Once an individual leaves military service, it becomes even less relevant as a factor in determining the individual’s domicile, and a military retiree should not assume that his former military home of record is his domicile. Ultimately, that determination must be made with reference to all of the relevant facts and circumstances.
In addition, holding a driver’s license is one factor to consider in any domicile determination, but the Department has distinguished between retaining a driver’s license and obtaining or renewing one. See, e.g., P.D. 00-151 (8/18/2000) and P.D. 02-149 (12/9/2002). As these cases indicate, the Department assigns less weight to merely retaining a previously held driver’s license than to obtaining or renewing a driver’s license as an affirmative step indicating intent. In this case, although the husband retained a State A driver’s license, it appears that he obtained or last renewed it during a prior period of State A residency.
The Taxpayers also claim that the wife registered to vote in State A in 2016. Consistent with the case law precedent established by the Supreme Court of Virginia in Cooper’s Adm’r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917), the Department assigns significant weight to the proper establishment and exercise of voting rights in a jurisdiction as an indication of domiciliary intent. See, e.g., P.D. 17-97. However, because a change of domicile requires both personal presence and an intent to remain in that jurisdiction permanently or indefinitely, just obtaining connections with another state while not presently residing there with the requisite intent to remain there at that time is insufficient to effect the change. See, e.g., P.D. 19-83 (8/2/2019). Therefore, if the wife had already changed her domicile to Virginia, she could not change her domicile to State A until she was residing there again with such intent, regardless of whether she registered to vote in State A.
Finally, the Taxpayers claim that they maintained a residence in State A while they were living in Virginia. Normally, maintaining a personal residence in another state in which one previously lived would be evidence that a taxpayer did not intend to abandon the domicile. The residence in question, however, was owned by family members.
At the time they decided to move into Virginia, it does not appear that the Taxpayers had established plans to leave the state at any definite time. The wife relinquished her State B driver’s license and obtained a Virginia driver’s license. The Taxpayers registered vehicles in Virginia and eventually purchased a permanent place of abode. Except for the possible application of the Servicemembers Civil Relief Act (the “Act”) to their circumstances, which will be considered below, such actions would normally indicate intent to change domiciliary residence to Virginia if they were performed by civilians.
Servicemembers Civil Relief Act
As explained in P.D. 19-67, the fact that the wife entered active duty military service in November 2015 does not necessarily mean that she ceased to be subject to Virginia income tax. As the Department has previously observed, the Act does not provide blanket immunity from state taxation. See P.D. 17-126 (6/29/2017). If the wife established domicile in Virginia prior to entering the military, she would remain taxable as a domiciled resident of Virginia until she changed her domicile.
Title 50 U.S.C. § 4001 provides that “a servicemember shall neither lose nor acquire a residence or domicile for purposes of taxation with respect to the . . . income of the servicemember by reason of being absent or present in any tax jurisdiction of the United States solely in compliance with military orders.” In this case, the Taxpayers were voluntarily residing in Virginia prior to the wife’s active duty assignment. The Taxpayers, therefore, were not present in Virginia solely in compliance with military orders. Accordingly, this provision of the Act did not apply to the Taxpayers’ circumstances.
CONCLUSION
After carefully considering all of the facts and arguments presented, I find that the Taxpayers established domiciliary residency in Virginia when they moved to Virginia in May 2015 and, therefore, were taxable as part-year residents from their move-in date until the end of the year. As part-year residents, the Taxpayers were required to report all income, deductions, subtractions, additions and modifications attributable to their period of Virginia residence. See Virginia Code § 58.1-303.
The Taxpayers previously filed a part-year return purportedly reflecting their period of Virginia residency from June through October 2015. The Taxpayers should file an amended part-year return within 30 days of the date of this letter to include the remainder of the 2015 taxable year. In addition, when the first part-year return was referred to the audit staff for review, questions were raised about whether the Taxpayers’ income was properly reported, even for the June through October residency period. Therefore, the Taxpayers should carefully review the instructions for filing a part-year resident return prior to completing and submitting the amended return. For example, to the extent any income was received while being residents of Virginia and included in the Taxpayers’ federal adjusted gross income (FAGI), it would have been subject to Virginia income tax unless it was subject to modification under Virginia law. See Virginia Code § 58.1-322.
The return must be submitted within 30 days of 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: *****. Once the amended return is received, it will be reviewed and processed and the assessment adjusted accordingly. If the return is not received in the time allotted, the assessment will be adjusted based on the best information available.
The Code of Virginia sections, regulations 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/2141.M