Were hotel owners Virginia residents for 2005-2007 when they kept Virginia property but spent fewer than 183 days there?

Subject

State A domicile and fewer than 183 Virginia days defeated resident assessments

Plain-English summary

Virginia abated the couple's 2005-2007 resident income-tax assessments. They had moved to State A to own and operate a hotel full time, bought a home there, registered primary vehicles there, and the husband obtained a State A driver's license and voting registration.

They retained significant Virginia connections, including residences, commercial property, vehicles, and the wife's Virginia driver's license, renewed in 2008. Virginia treated that license as a strong adverse fact but found the preponderance of evidence showed both spouses had established State A domicile before 2005.

The couple did not maintain ideal day-by-day records. Even so, their hotel operations and receipts showed significantly more State A activity and supported the conclusion that they spent fewer than 183 days in Virginia each year. Virginia warned them to substantiate future day counts, particularly after they claimed 170 Virginia days in 2007.

What this means for you

• Domicile and actual residency are separate Virginia tests.
• Keeping Virginia homes or vehicles did not necessarily preserve Virginia domicile.
• A Virginia driver's license was strong evidence of Virginia intent, even when renewed for convenience.
• Calendars, logs, receipts, and travel records are important when the 183-day threshold is close.

Common questions

Did the wife remain domiciled in Virginia because she kept a Virginia license?

No. Virginia weighed that fact against the stronger overall evidence that she had moved to State A.

How did they prove fewer than 183 days without a complete diary?

Their full-time hotel activity and receipts showed substantially more transactions in State A than Virginia.

Citations and references

• Va. Code §§ 46.2-323.1 and 58.1-302.
• P.D. 02-149.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-95

Original ruling text

June 11, 2009

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 assessments issued to your clients, * (the "Taxpayers"), for the taxable years ended December 31, 2005 through 2007.

FACTS

In June 1999, while Virginia residents, the Taxpayers purchased a hotel incorporated as an S Corporation in * (State A). They moved into the hotel and began running it full time soon thereafter. In May 2000, the Taxpayers purchased a residence in State A. The husband acquired a State A driver's license and registered to vote in 2001. The wife acquired a State A driver's license and registered to vote in State A in August 2008. The Taxpayers primary vehicles, an automobile and a motorcycle were registered in State A for the taxable years at issue.

In addition, the Taxpayers continued to own two residences, two commercial buildings and land in Virginia. They own a dump truck, an antique car and several small trailers that are registered in Virginia. The wife maintained a Virginia driver's license, renewing it as late as January 2008.

The Taxpayers filed Virginia nonresident individual income tax returns for the taxable years at issue. Under audit, the Department determined the Taxpayers were actual and domiciliary residents of Virginia for the 2005 through 2007 taxable years and assessed additional tax and interest. The Taxpayers contest the assessment, asserting they were neither domiciliary nor actual residents of Virginia.

DETERMINATION

Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. 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 actually reside elsewhere. 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.

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, sites of real and 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 of 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. The taxpayer has the burden of proving that he or she has abandoned his or her original domicile. If the information is inadequate to meet this burden, the Commissioner must conclude that the taxpayer did intend to return to his or her original domicile.

Domiciliary Residency

In the instant case, the Taxpayers performed numerous actions consistent with acquiring a domicile in State A. The Taxpayers purchased, owned and operated a full­time business in State A from June 1999 through June 2006. They established a permanent place of abode by obtaining a residence. The husband acquired a State A driver's license and registered to vote in State A well before the taxable years at issue. The Taxpayers also owned two vehicles registered in State A. The Taxpayers have also stated that they spent more time in State A than Virginia during 2005 through 2007.

The Taxpayers also performed some actions indicative of retaining a Virginia domicile. The Taxpayers maintained two residences in Virginia and had several vehicles registered in Virginia. The wife maintained a Virginia driver's license that she renewed in January 2008. The Taxpayers also owned several commercial properties in Virginia.

The Taxpayers acknowledge that they do retain one house in Virginia to use when they visit Virginia. The other residence is a camp used as a summer home for family members. The dump truck is used exclusively used to haul trash by family members and the antique car does not have license plates. The commercial properties produce rental income that requires little attention from the Taxpayers.

The wife's driver's license expired in January 2008. She indicates she renewed it in Virginia because she was in Virginia at the time. Virginia Code § 46.2-323.1 states, "No driver's license . . . shall be issued to any person who is not a Virginia resident." While renewing her driver's license may have been for purposes of convenience, doing so is a strong indicator of an intent to maintain a Virginia domiciliary residence. See Public Document (P.D.) 02-149 (12/09/2002).

There is no question that the husband changed his domicile to State A before 2005. The strongest evidence against the wife that would indicate the intent to maintain a Virginia domicile is her renewal of a Virginia driver's license. She has since relinquished the license. In addition, the preponderance of evidence clearly shows that she moved to State A and took sufficient actions to establish a domiciliary residence there well before the 2005 taxable year.

Actual Residency

A taxpayer that is a domiciliary resident of a state other than Virginia, but spends significant portions of his time in Virginia (whether for business or personal reasons) should retain records to substantiate where he spent his time. An account book, diary, log, statement of expenses, trip sheet, or similar record in which the information as to where such taxpayer spent each day of the taxable is recorded. Absent such record, the Department must rely on the best available information to make a determination.

The Taxpayers state they spent 120 days in Virginia in 2005, 90 days in 2006, and 170 days in 2007. The Department's auditor determined the Taxpayers were in Virginia for 274 days in 2005, and 306 days in 2006. The auditor reported that the Department's computation is based on the information and documentation provided by the Taxpayers.

While the Taxpayers failed to maintain adequate records to substantiate the time they spent in Virginia, a further review of the documentation supports the Taxpayers' position. The Taxpayers operated a business full-time in State A in 2005 and for half the year in 2006. In addition, receipts and statements provided by the Taxpayers show significantly more transactions in State A than in Virginia. Accordingly, I find it reasonable to conclude that the Taxpayers spent less than 183 days each year in Virginia during the taxable years at issue.

CONCLUSION

Based on the foregoing, the assessments of individual income tax for the 2005 through 2007 taxable years have been abated.

The Taxpayers are hereby put on notice to substantiate the time they spend in Virginia for future taxable years. Given that they claimed to have spent 170 days in Virginia in 2007, lack of substantiation coupled with other information could result in the Department finding the Taxpayers spend sufficient time in Virginia to be considered actual residents of Virginia.

The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library 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,

Janie E. Bowen

Tax Commissioner

AR/1-3014145489.B