January 11, 2022
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 year ended December 31, 2017.
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 2017 taxable year. A review of the Department’s records showed that the Taxpayer had not filed a return. 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 an assessment. The Taxpayer appeals, contending he was a resident of ***** (State A).
DETERMINATION
Residency
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 Taxpayer performed some steps to establish domicile in State A prior to the taxable year at issue. In 2014, he was transferred by his employer to an office located in State A, and the position was of an indefinite duration. He also began leasing personal residences in State A at that time. The Taxpayer resided in State A until he was transferred by his employer to ***** (State B) in 2020. During the taxable year at issue, the Taxpayer also filed a State A resident income tax return.
The Taxpayer also maintained some connections with Virginia during his period of State A residence. The Taxpayer retained a personal residence in Virginia but converted it to a rental property. The Taxpayer also kept a vehicle registered in Virginia. It was co-registered with his mother, a Virginia resident who kept the vehicle at her house and was the actual operator. In addition, the Taxpayer maintained a Virginia driver’s license until he surrendered it in January 2021. Further, it appears that the Taxpayer was registered to vote in Virginia, but had not actually voted since 2004.
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 in which he votes. Residence, for all purposes of qualification to vote, requires both domicile and 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 his domicile during the time he held and used such registrations.
While the Taxpayer retained some connections with Virginia, certain facts in this case mitigate the significance of those connections as factors indicating he intended to retain a Virginia domicile. While the Taxpayer did retain ownership of a residence in Virginia after moving to State A and then to State B, he kept it as rental property that was leased continuously by unrelated third parties. As such, the property was not available to the Taxpayer for personal use. Further, while the Taxpayer maintained a vehicle co-registered with his mother, he did so because of her declining health and to ensure he could easily take possession when she died. In addition, while the Taxpayer kept his Virginia license when he moved to State A, he did not get a State A license because he did not need a vehicle and he did not realize that he was required to relinquish his Virginia license when he moved. Finally, while the Taxpayer had a Virginia voter registration, he had not voted for many years.
Nonresident Individuals
Under Virginia Code § 58.1-325, individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. Virginia Code § 58.1-302 limits the term income and deductions from Virginia sources to the items of income, gain, loss and deductions attributable to the ownership of property in Virginia or the conduct of a business, trade, profession or occupation in Virginia. Renting a house in Virginia is conducting a business in Virginia for Virginia income tax purposes.
In accordance with Title 23 of the Virginia Administrative Code (VAC) 10-110-180 A, the Virginia taxable income of a nonresident is computed by multiplying his Virginia taxable income (computed as if he were a resident) by the ratio of his net income, gain, loss, and deductions from Virginia sources to his net income, gain, loss, and deduction from all sources. Thus, a nonresident individual who has income from carrying on a business, trade, profession, or occupation within Virginia is required to file a Virginia Nonresident Individual Income Tax Return, currently Form 763, pursuant to Virginia Code § 58.1-341, unless the individual meets the filing exception described in Virginia Code § 58.1-321. See P.D. 07-148 (9/12/2007). In this case, however, the Taxpayer had a nondeductible loss from his Virginia rental property resulting in a zero Virginia income tax liability.
CONCLUSION
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 forms 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.
The Taxpayer has not resided in Virginia since 2014. Although he retained some connections with Virginia during his period of State A residence, it does not appear that the connections strongly evidenced an intent to retain a Virginia domicile under the unique facts of this case. In addition, the Taxpayer is now living in State B and has obtained the types of connections, such as a driver’s license, vehicle registration and voter’s registration that evidence a strong intent to establish a domicile elsewhere.
As stated above, a change in domicile occurs as part of a process. Although it would have helped the Taxpayer’s case to have obtained more permanent connections in State A during his period of residence there, it appears that the taxpayer intended to reside in State A at least indefinitely. When the facts and circumstances of this case are viewed in the totality, I find that the Taxpayer successfully changed his domicile prior to the taxable year at issue.
Accordingly, the assessment for the 2017 taxable year will be abated. I would note, however, that should the Taxpayer receive income from his Virginia rental property in subsequent years, he may be required to file a nonresident Virginia return pursuant to Virginia Code § 58.1-341.
The Code of Virginia sections, regulation, 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/3743.B