Rulings of the Tax Commissioner

February 23, 2021

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 assessment 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 and 2016 taxable years. A review of the Department’s record showed that the Taxpayer had not filed a return for either year. The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia. After reviewing the information provided, the Department determined that he was a domiciled resident of Virginia and issued assessments. The Taxpayer appeals, contending he was a resident of Maryland.

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 providing 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 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.

By letter dated February 25, 2020, the Department requested the Taxpayer provide documentation in order to verify his residency status. The Taxpayer acknowledged the request, but failed to provide sufficient documentation on which the Department could make an informed decision concerning his domiciliary residence or tax liability. The Taxpayer has also paid the assessments in full. Even if he retained Maryland domicile, it appears he could have been an actual resident of Virginia if he was in the Commonwealth for more than 183 days.

Reciprocity

Virginia Code § 58.1-342 B grants the Department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income tax when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. In addition, employers are not required to withhold Virginia income tax from residents of these states. Virginia currently has this type of agreement with Maryland, West Virginia and Pennsylvania.

In this instance, the Taxpayer has indicated that he filed resident income tax returns and reported all of his income to Maryland for the 2015 and 2016 taxable years. Under the Reciprocal Income Tax Agreement Between Commonwealth of Virginia and State of Maryland (12/7/2006), Virginia residents commuting into Maryland on a daily basis are permitted to have taxes withheld and paid to Virginia only. If a Virginia resident has Maryland income tax withheld from wages earned while commuting to work in Maryland, the taxpayer should file an income tax return with Maryland in order to receive a refund. 

Credit for Taxes Paid to Other States 

Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia income tax return for taxes paid to another state provided the income is either earned or business income. 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 Public Document (P.D.) 97-301 (7/7/1997).

CONCLUSION

Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct.”  As such, the burden of proof is on the Taxpayer to show he was not subject to income tax in Virginia. Further, Virginia Code § 58.1-1826 precludes a court from granting relief to taxpayers seeing correction of erroneous state tax assessments in cases in which the erroneous assessment is attributable to the taxpayers’ willful failure or refusal to provide the Department with necessary information as required by law. Because the Taxpayer has failed to respond to the Department’s information request, there is no basis to adjust the assessments. 

The assessments at issue, however, were made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer has stated that income tax returns were filed for the taxable years in question with Maryland. Therefore, the Taxpayer may be entitled to a credit for taxes paid to another state. As such, the Taxpayer will be granted one last opportunity to provide complete copies of the Maryland tax returns for the taxable years at issue. The documentation or return should be submitted within 60 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 documentation will be reviewed and the assessment will be adjusted and refunds issued, as appropriate. If the documentation is not received within the allotted time, the assessment will be considered to be correct as issued.

The Code of Virginia sections 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/3255.A