April 3, 2025
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 “Taxpayers”) for the taxable year ended December 31, 2019.
FACTS
In Public Document (P.D.) 24-21 (3/13/2024), the Department gave the Taxpayers, a husband and wife, one final opportunity to file a Virginia individual income tax return or submit a completed domicile questionnaire regarding their residency status. Because the Taxpayers have provided a completed questionnaire, the Department will now issue a determination on the merits.
DETERMINATION
Taxation of Virginia Residents
Virginia Code § 58.1-301 provides, with certain exceptions, that the terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income (VTI) with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Chapter 3 of Title 58.1 of the Code of Virginia.
It is well established that a state may tax all the income of its residents, even income earned outside the taxing jurisdiction. In New York ex rel. Cohn v. Graves, 300 U.S. 308, 312-313 (1937), the United States Supreme Court explained “[t]hat the receipt of income by a resident of the territory of a taxing sovereignty is a taxable event is universally recognized.” As such, even if the Taxpayers had no Virginia source income, they would have been subject to Virginia income tax if they had been Virginia residents.
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 that person and the place to which that person intends to return even though they may be residing elsewhere. An actual resident of Virginia means a person who, for an aggregate of more than 183 days of the taxable year, maintained their place of abode within Virginia. A Virginia domiciliary resident continues to be subject to Virginia taxation, even if they work in another state or country. 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 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. See Cooper’s Adm’r v. Commonwealth, 121 Va. 338, 347 (1917). The burden of proof that an individual has abandoned or failed to establish domicile in Virginia rests with the individual. See Title 23 of the Virginia Administrative Code (VAC) 10-110-30 B 3.
The determination of whether a change of domicile has occurred is highly dependent on the facts and circumstances of the individual case, and no single factor is dispositive. Factors to be considered include, but are not limited to, the following:
situs of real or tangible property, location of savings and checking accounts, motor vehicle registration and licensing, motor vehicle operator’s license, voter registration, membership in clubs and civic groups, place of business, profession or employment, charitable contributions, location of schools attended by children, length of time of residence, place of birth and marriage, residence of family, reason for abandoning or acquiring domicile, and, in the case of a minor or married person, domicile of parents, husband or wife, and/or children. Id.
The Taxpayers filed Virginia resident income tax returns in taxable years before and after the taxable year at issue. On the completed domicile questionnaire, the Taxpayers stated that they owned two residences in Virginia, maintained Virginia driver’s licenses, and had three vehicles registered in Virginia. The Taxpayers did not provide any information that would indicate they resided anywhere else other than Virginia or established connections with any other state that might suggest they intended to change their domicile. In particular, they did not list any residences owned or leased by them outside of Virginia.
Credit for Taxes Paid to Another State
Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia return for income taxes paid to another state provided the income is either earned or business income or gain from the sale of a capital asset. 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 P.D. 97-301 (7/7/1997). The limitation is computed by multiplying the individual’s Virginia tax liability by a fraction, the numerator of which is the income upon which the other state’s tax is imposed, and the denominator of which is Virginia taxable income.
The husband states that he did not work in Virginia during the taxable year at issue. The Department’s records indicate that the Taxpayers resided in a county bordering ***** (State A) and claimed credit for tax paid to State A on their 2020 Virginia income tax return. If the Taxpayers also paid income tax to State A for the 2019 taxable year, they would be eligible to claim a credit on their Virginia income tax return to the extent allowed under Virginia Code § 58.1-332.
CONCLUSION
The Taxpayers have not presented any evidence to establish residency outside of Virginia. Therefore, after considering all of the information provided, the Department finds that the Taxpayers remained taxable as either actual or domiciliary residents of Virginia for the 2019 taxable year. As such, the Taxpayers remained subject to Virginia income tax even if the husband’s income was earned in another state. The Taxpayers may, however, be able to claim a credit for any income tax paid to such other state.
The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayers, however, may have information that better represents their Virginia income tax liability for the taxable year at issue. Therefore, they should file a 2019 Virginia resident income tax return and claim credit for income tax paid to another state to the extent permitted by Virginia Code § 58.1-332. The return should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****. The return will be reviewed and processed, and the assessment will be adjusted as warranted. If the return is not received within the allotted time, the assessment will be considered correct.
The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public document cited is available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or email at *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4892.Q