Tax Type
Individual Income Tax
Description
Taxation of nonresidents; Apportionment of income
Topic
Taxpayers' Remedies
Date Issued
03-21-1997
March 21, 1997
Re: § 58.1-1821 Application: Individual Income Tax
Dear**********************
This will reply to your letter concerning the 1991 through 1994 Virginia individual income tax assessments for ******* (the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
In 1985, the Taxpayer became a domiciliary resident of Virginia. In July 1991, the Taxpayer and his wife purchased a home and moved to another state. As many of his business activities were in the Washington, D.C. area the Taxpayer rented an apartment in Virginia. The wife worked with the Taxpayer in his business. The Taxpayer incorporated his business, and he and his wife were 100% stockholders. In 1993, the apartment was converted into a condominium. The Taxpayer purchased the condominium, and rented it to the corporation.
In May 1991, the Taxpayer claims to have changed his domiciliary residence to this other state. To establish residency, the Taxpayer registered to vote, purchased a house, registered automobiles, became a member of a country club, established bank accounts, moved investment accounts to a stock broker, invested in real property, conducted some corporate business activities, and executed a last will and testament in the other state.
The Taxpayer continued to work in Washington, D.C. where a substantial part of his business was conducted. He stayed in the Virginia condominium for convenience. The Taxpayer also maintained bank accounts in Virginia, had automobiles registered in Virginia (in addition to the automobiles registered in the other state), and had a Virginia driver's license.
The Taxpayer contends that he was not a domiciliary resident of Virginia after May 1991. Further, he did not stay in Virginia for more than 183 days in any of taxable years 1992 through 1994. He acknowledges that he may have had Virginia source income for the years in which he was a nonresident of Virginia. He is requesting that the assessments for the taxable years 1991 through 1994 be adjusted accordingly.
DETERMINATION
Two classes of residents, a domiciliary resident and an actual resident, are set forth in Code of Virginia § 58.1-302. The domiciliary residence of a person means that the permanent place of residence of a taxpayer is Virginia and the place to which he intends to return is Virginia even though he may actually reside elsewhere. For a person to change domiciliary residency to another state, 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 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.
The Taxpayer admits being a domiciliary resident of Virginia until May 1991, when he contracted to purchase a house outside of Virginia. Before that time, he made plans with his wife to abandon Virginia as their domiciliary residence and establish domiciliary residency elsewhere. They closed on the house on July 19, 1991, and actually began moving to their household goods on that date. Other actions that the Taxpayer took in moving his domiciliary residence to the other state included changing voter registration, registering automobiles, opening bank accounts, moving investment accounts to a stock broker, making real estate investments, and conducting estate planning, which included preparing a last will and testament, a medical power of attorney, a directive to physicians, and an anatomical gift statement. While the Taxpayer retained his Virginia driver's license, the overwhelming evidence indicates that the Taxpayer actually abandoned Virginia as his domiciliary residence on July 19, 1991, and established his domiciliary residence in the other state.
Subsequent to July 19, 1991, the Taxpayer indicates that he resided in Virginia for 177 days in 1992 and an average of 150 days per year during the taxable years 1993 and 1994. As a result, the Taxpayer was not an actual resident of Virginia for the taxable years 1992 through 1994.
While the Taxpayer was a nonresident of Virginia since July 19, 1991, the Taxpayer admits having received income from Virginia sources. Pursuant to Code of Virginia § 58.1-302, "Income and deductions from Virginia sources," in part, includes:
1. Items of income, gain, loss and deduction attributable to:
-
- a. The ownership of any interest in real or tangible personal property in Virginia; or
b. A business, trade, profession or occupation carried on in Virginia.
- a. The ownership of any interest in real or tangible personal property in Virginia; or
Additionally, Code of Virginia § 58.1-325(A) provides that:
-
- The Virginia taxable income of a nonresident individual, partner or beneficiary shall be an amount bearing the same proportion to his Virginia taxable income, computed as though he was a resident, as the net amount of his income, gain, loss and deductions from Virginia sources bears to the net amount of his income, gain, loss and deductions from all sources.
The Taxpayer paid himself a salary while performing services in several states, including Virginia. As a result, he must apportion income to determine the amount attributable to Virginia sources. Such apportionment should be based upon factors which most equitably determine the Taxpayer's portion of total income that is attributable to services performed in Virginia. Services performed in Virginia would include, but not be limited to, consulting activities, contract negotiations, business meetings, and any other business activity that the Taxpayer conducted while performing services within the geographical boundaries of Virginia.
Based on the information provided, the Taxpayer and his wife were domiciliary residents of Virginia until July 19, 1991. Subsequently, they were nonresidents of Virginia who received income from Virginia sources through the taxable year 1994. As a result, the Taxpayers are required to file a Virginia part-year return for the portion of taxable year 1991 that they were domiciliary residents of Virginia. Additionally, they are required to file Virginia nonresident returns on income from Virginia sources for the period of July 20, 1991, through December 31, 1991, and for each of the taxable years 1992 through 1994. The appropriate forms and instructions have been enclosed. Upon receipt of completed and signed returns with the full amount of applicable tax, penalty, and interest from the Taxpayer, the balance of the assessments for the taxable years 1991 through 1994 will be abated. The income tax returns and payments should be remitted, within the next 60 days, to ********Office of Tax Policy, Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880, who may also be contacted at ********** if there are further questions.
For taxable years beginning with 1995, if the Taxpayer or his wife becomes a domiciliary or actual resident of Virginia they are required to file Virginia resident income tax returns on all of their income regardless of its source. In addition, if they continue to be nonresidents of Virginia they are required t file a Virginia nonresident income tax return for income received from services performed in Virginia.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11770N
Rulings of the Tax Commissioner