December 28, 2021
Re: Request for Ruling: Individual Income Tax
Dear *****:
This will respond to your letter in which you request a ruling regarding whether your client’s income that is earned in a foreign country is subject to taxation in Virginia. I apologize for the delay in responding to your request.
FACTS
The Taxpayer was living in ***** (State B) in 2008 when he was hired as a professor by a University located in ***** (State A) for its campus in ***** (Country A). Because the Taxpayer’s employment required that he work in Country A, the Taxpayer and his family moved there.
Through a revocable trust, the Taxpayer and his spouse established a bought a condominium in Virginia in February 2016. The Taxpayer, however, remained as the primary debtor on the mortgage. During 2016, the Taxpayer was in Virginia from June 4 to August 12 (70 days) and the spouse and child were in Virginia from June 4 to September 15 (101 days). In addition, the Taxpayer spent 69 days in Virginia from June 4 to August 11, 2017, while the spouse resided in Virginia from April 23 to October 12 (173 days) and the child visited Virginia from June 4 to September (96 days). At some point after 2017, the spouse and child began residing full-time in the condominium in Virginia where the child attends a school.
In 2018, the Taxpayer and his spouse acquired Virginia driver’s licenses and registered to vote in Virginia, although the Taxpayer has not voted. The spouse also owns a vehicle in Virginia. The Taxpayer is a joint owner with his spouse of a checking and savings account with a United States bank where approximately two-thirds of his salary is deposited monthly. The Taxpayer is also a beneficiary of the revocable trust referenced above, which owns the condominium and another residence in Virginia where the Taxpayer’s mother lives. In addition, the Taxpayer has signatory authority on the bank account of a Virginia LLC, and for certain other unspecified business matters but he has no ownership interest. The LLC, owned by the spouse, was established in 2019 and owns an apartment in Virginia. The Taxpayer earns no income from activities in Virginia.
The Taxpayer essentially lives and works in Country A during the school year and spends summers in Virginia. He and the spouse have spent enough time in Country A to maintain Country A residence permits. The Taxpayer resides in an apartment in Country A paid for by the university and maintains a bank account in Country A where approximately one-third of his salary is deposited. The Taxpayer also owns two vehicles in Country A and, according to this request, qualifies as a resident of Country A under the bona fide residency test for federal income tax purposes.
The Taxpayer requests a ruling as to whether his income is subject to Virginia income tax for the 2016 through 2019 taxable years.
ANALYSIS
The Code of Virginia imposes an annual tax based on the Virginia Taxable Income (“VTI”) of all individuals. See Virginia Code § 58.1-320. The calculation of VTI varies depending on whether an individual is a resident or nonresident of Virginia. The VTI of a nonresident is based upon the percentage of total income that is attributable to Virginia sources. See Virginia Code § 58.1-325 and Title 23 of the Virginia Administrative Code (VAC) 10-110-30 D. The facts provided indicate that the taxpayer earned no income from activities in Virginia during the taxable years at issue, so the taxpayer’s income would be taxable in Virginia only if he was a Virginia resident.
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Virginia Code § 58.1-302. An actual resident of Virginia is a person who, for an aggregate of more than 183 days of the taxable year, maintained his place of abode within Virginia. The facts provided do not indicate that the taxpayer maintained a place of abode in Virginia for 183 days or more during any of the taxable years at issue.
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. 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, business pursuits, employment, income sources, residence for federal income tax purposes, marital status, residence of parents, spouse and children, if any, leasehold, situs of personal real property owned by the applicant, motor vehicle and other personal property registration, residence for purposes of voting as proven by registration to vote, if any, and such other factors as may reasonably be 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 a particular case. A simple declaration is not sufficient to establish domicile.
In order to change 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.
Because the facts presented do not indicate that the Taxpayer maintained any Virginia connections prior to 2016, this response will assume the Taxpayer maintained a domicile in a state or country other than Virginia prior to that year. Accordingly, the question becomes whether the Taxpayer changed his domicile to Virginia under the facts presented. Here, the Taxpayer obtained a Virginia driver’s license, obtained a Virginia voter’s registration, purchased a personal residence in Virginia, and had signatory authority for a Virginia business entity. The spouse and children also appear to have begun residing in Virginia more permanently.
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 eligibility to vote, 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 where 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. Consistent with the precedent established by the Virginia Supreme Court in Coopers Adm’r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917), the Department will consider the fact that a taxpayer obtained a Virginia voter’s registration and voted in elections in Virginia to be very strong evidence that that individual considered Virginia to be her domicile during the time she held and used such registrations.
Having connections such as personal residences, driver’s licenses, motor vehicle registrations, and voter’s registrations indicates that an individual had the intent to establish domicile in the state or country where such connections were established. Acquiring domicile, however, in a new location requires both intent and personal presence. See Coopers Adm’r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917), in which the Virginia Supreme Court observed that neither physical presence alone, nor expressed intention alone are sufficient to create a legal domicile for taxation purposes. The Department has determined that individuals cannot establish a domicile despite having some or all of the above connections if they have not yet resided in the jurisdiction with the intention to remain permanently or indefinitely. See, e.g., P.D. 13-97 (6/11/2013), P.D. 15-4 (1/8/2015), P.D. 17-97 (6/12/2017) and P.D 19-83 (8/2/2019).
The conflicting facts presented and the apparent increase in connections with Virginia significantly cloud any clear determination as to the Taxpayer’s residency intent. As a result, the Department will refrain from expressing a formal opinion concerning where the Taxpayer may have been domiciled. For purposes of this ruling, it has been assumed that the Taxpayer was a domiciliary resident of Country A prior to the 2016 taxable year. In order to change his domicile to Virginia the Taxpayer would need to have established a physical presence in Virginia with the intention to remain permanently or indefinitely in Virginia at that time. The Taxpayer’s temporary stays in Virginia while on summer break do not appear to be enough to meet this standard.
The Taxpayer would have also needed to abandon his existing domicile with no intent to return. Given the connections the Taxpayer maintains with Country A, it does not appear that he met this requirement either, provided that Country A is in fact his domicile. As such, considering only the facts presented in this ruling request and the assumptions stated, it appears the Taxpayer was not a domiciliary resident of Virginia. Further, while most of his income would not have been taxable in Virginia for the 2016 through 2019 taxable years, if the Taxpayer received any income and deductions from Virginia sources as defined in Virginia Code § 58.1-302, he may have an income tax liability as a nonresident.
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Taxpayer should be aware that continuing connections with Virginia, such as registering vehicles in Virginia, retaining a Virginia driver’s license, or other indicators of permanent residence in Virginia will likely result in contacts by the Department inquiring about the situs of the Taxpayer’s domicile. In addition, the Taxpayer should be aware that Virginia law does not permit nonresidents to obtain Virginia driver’s licenses, 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. Further, individuals who obtain or use a Virginia voter’s registration for which they were not qualified may be subject to penalties under Virginia elections laws.
Additionally, the Taxpayer traveled back and forth between Virginia and Country A throughout the taxable years at issue. Under Virginia Code § 58.1-303, a person is considered to have become a resident of Virginia “by moving to the Commonwealth” from outside Virginia during the taxable year. When individuals travel into and out of Virginia multiple times during a taxable year, it is difficult for the Department to determine whether they moved into or out of Virginia. Instead, such activities suggest they were residents of Virginia who visited another state or other states, including domiciliary states for short periods of time. Accordingly, domiciliary residents of another state who spend more than 183 days in Virginia during a taxable year will be considered to be actual residents from the date they first enter Virginia to the last day they spend in Virginia. See P.D. 15-99 (5/11/2015). Should the Taxpayer begin spending more time in Virginia, he should be aware of the effects it may have on his actual residency status.
The Code of Virginia sections, regulation, and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3401-C