March 18, 2020
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter submitted on behalf of ***** (the “Taxpayers”), in which you appeal the denial of individual income tax refunds claimed on amended returns filed for the taxable years ended December 31, 2015 through 2017.
FACTS
The Taxpayers, a husband and wife, timely filed resident Virginia individual income tax returns for the 2015 through 2017 taxable years. Thereafter, the Taxpayers filed amended the returns indicating they were nonresidents of Virginia. Under review, the Department concluded the Taxpayers were Virginia residents during the taxable years at issue and rejected the amended returns. The Taxpayers appeal, contending they were residents of ***** (“Country A”) and their income earned outside of Virginia was not subject to Virginia income tax.
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.
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 Taxpayers performed a number of steps indicative of establishing domicile in Country A. They relocated to Country A during 2012, when both Taxpayers were transferred to an office located in Country A by their shared employer. The transfer was initially intended to be for a two-year temporary term, but was extended indefinitely during 2014. The husband continues to work for the same employer while the wife has since become employed with a company based in Country A. In 2018, the wife became a citizen of Country A. They leased a personal residence in Country A from 2012 through 2018, at which time they purchased a residence. Both Taxpayers obtained Country A drivers licenses in 2015, and registered a vehicle there. They have not returned to Virginia since 2012.
The Taxpayers also maintained some connections with Virginia after moving to Country A. Prior to the 2012 taxable year, the Taxpayers were residents of Virginia, during which time they owned a personal residence. The Taxpayers retained that residence after moving to Country A and converted it to a rental property, which was leased through a property management company. There is no dispute that rents collected from this property are Virginia source income and subject to Virginia income tax. The residence was sold in 2018. Further, both Taxpayers were registered to vote in Virginia, but did not participate in any elections after 2012. Additionally, both Taxpayers maintained Virginia driver’s licenses, which the wife obtained in 2018.
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).
The fact that an individual has a Virginia driver’s license is one factor to consider, among other possible factors, in any given domicile case. Nonresidents are not permitted to hold Virginia driver’s licenses. See Virginia Code § 46.2-323.1. They are, however, permitted to continue to use their licenses from their home states or countries. See Virginia Code § 46.2-307. For the purposes of Title 46.2 of the Code of Virginia, “nonresident” is generally defined as every person who is not domiciled in the Commonwealth. See Virginia Code § 46.2-100. Thus, in general, an individual must be a domiciliary resident of Virginia in order to hold a Virginia driver’s license.
The Taxpayers were also registered to vote in Virginia during the taxable years at issue. The Department has found voter registration statutes do not precisely mirror residency as it applies to income tax. Under Virginia Code § 24.2-101, an individual qualified to vote in Virginia must be a resident of the precinct in which she offers to vote. This statute requires a resident to have both legal domicile and a place of abode in Virginia. For Virginia voting purposes, domicile is determined by the intention of the individual, supported by an individual’s factual circumstances. See State Board of Elections (SBE) Policy 2009-005 and P.D. 17-21 (3/15/2017). By registering to vote in Virginia, the Taxpayers assert to the SBE that they were domiciliary residents of Virginia.
Further, in considering employment as it relates to an individual's domicile, the Department has analyzed whether a specific employment contract was established permanently or for an indefinite period of time. See P.D. 99-158 (6/21/1999). In the case of individuals who engage in employment under set term contracts, the Department has ruled that such individuals generally lack the intent to abandon their Virginia domicile based on the temporary nature of the activity. See P.D. 86-219 (11/3/1986), P.D. 94-353 (11/23/1994), P.D. 96-207 (8/26/1996), P.D. 02-33 (3/13/2002), P.D. 05-8 (2/1/2005), P.D. 10-134 (7/12/2010), and P.D. 15-142 (6/30/2015). In P.D. 01-161 (10/23/2001), the Department held, however, that a taxpayer that takes sufficient actions to abandon his Virginia domicile can be considered to have established a new domicile even though he was temporarily employed for a definite period of time.
The Department acknowledges that a change of domicile occurs as part of a process in which no single factor is dispositive. Where a change of domicile occurs as part of a process, the exact timing of when the true intent of an individual to change domiciliary residence can be difficult to discern. Unless a change in domicile has clearly been established through the preponderance of evidence, the Department will generally consider a change to have occurred toward the beginning of the process.
Here, while the Taxpayers moved to Country A under a temporary work assignment in 2012, it became a permanent assignment in 2014. Thereafter, the Taxpayers established a number of connections with Country A including entering into a lease for a personal residence, obtaining driver’s licenses, and eventually citizenship. They now own a residence in Country A, and the wife no longer works for the original employer and is instead employed with a company based in Country A.
After carefully considering all of the evidence presented, I find that the Taxpayers began the process of changing their domicile to Country A prior to 2015. Accordingly, the amended returns for the 2015 through 2017 taxable years will be processed and refunds issued, as appropriate.
While the Department concedes that the Taxpayers were not domiciliary residents of Virginia for the 2015 through 2018 taxable years, the Taxpayers should be aware that continuing connections with Virginia, such as retaining a Virginia driver’s license or other indicators of a permanent residence in Virginia will likely result in future contacts by the Department with respect to the situs of the Taxpayers’ domicile. As in any determination, a change in the facts and circumstances could result in a change in the Department’s determination in subsequent years. In addition, the Taxpayers should be aware that Virginia law does not permit a nonresident to obtain a Virginia driver’s license, and persons providing a false statement to an agency of the Commonwealth may be subject to penalty under Virginia law. Any applicant who knowingly makes a false statement to DMV is subject to penalties under Virginia Code § 46.2-348.
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/2111.A