Did a one-year job, rented housing, and bar admission in another state establish that an individual had abandoned his Virginia domicile for 2006?

Subject

Taxpayer did not take sufficient steps to abandon his Virginia domicile or acquire a State A domicile.

Plain-English summary

The taxpayer remained a Virginia domiciliary resident for all of 2006. He moved to State A for a one-year employment agreement, rented several residences, and later passed that state's bar exam. But the Department found that the fixed-term job and living arrangements did not clearly show an intent to remain permanently or indefinitely.

Other conduct pointed back to Virginia: he kept his Virginia driver's license and vehicle registration, used a Virginia address on his federal and State A returns, declined a second one-year term, and returned to Virginia in June 2007. Taken together, those facts did not prove that he had abandoned Virginia domicile and acquired a new one.

The assessment therefore remained in place. The ruling said he might qualify under Va. Code § 58.1-332(A) for a Virginia credit for income tax paid to State A on earned or business income, but he had to file the 2006 Virginia return with the credit computation, State A return, and Form W-2. Without the return, the outstanding assessment would become due.

What this means for you

• A temporary out-of-state assignment does not by itself end Virginia domicile.
• Virginia weighs employment duration, housing, licenses, registrations, return addresses, and later conduct together.
• The taxpayer claiming a change bears the burden of proving both abandonment of Virginia and acquisition of a new domicile.
• Remaining a Virginia resident does not necessarily create double tax; a statutory credit may be available for qualifying tax paid to another state.

Common questions

Did passing the State A bar prove a new domicile?

No. It supported the taxpayer's position, but the Department weighed it against the temporary job, retained Virginia ties, and return to Virginia.

Was the out-of-state tax credit automatically allowed?

No. The ruling said the taxpayer might qualify and required a Virginia return, credit computation, State A return, and Form W-2.

Citations and references

• Va. Code §§ 58.1-302 and 58.1-332(A).
• P.D. 99-158, P.D. 86-219, P.D. 94-353, P.D. 96-207, P.D. 02-33, P.D. 05-8, P.D. 10-134, and P.D. 01-161, cited in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-256

Original ruling text

November 12, 2010

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, 2006. I apologize for the delay in the Department's response.

FACTS

In June 2006, the Taxpayer moved from Virginia to * (State A) when he accepted an employment engagement under a one-year agreement. The Taxpayer passed the State A bar exam and was admitted to practice in State A in May 2007. At the end of the one-year employment period, the Taxpayer declined an offer to work for another one-year term and moved back to Virginia in June 2007.

While in State A, the Taxpayer leased several houses. He also continued to hold his Virginia driver's license and his car remained registered in Virginia. His federal and State A tax returns were filed using a Virginia address.

The Department obtained information from the Internal Revenue Service (IRS) indicating that the Taxpayer received taxable income in 2006 and requested information to verify whether the Taxpayer was subject to Virginia income tax. When the Taxpayer failed to respond, an assessment was issued based on the available information. The Taxpayer appeals the assessment, contending he took sufficient steps to establish residency in State A and all income earned in 2006 was earned in State A.

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. 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.

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 concedes that it is difficult to know whether a taxpayer intends to return to Virginia. 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 Virginia domicile. If the information is inadequate to meet this burden, the Commissioner must conclude that he or she intended to remain indefinitely in Virginia.

The Taxpayer performed activities indicative of obtaining a State A domicile. He leased several places of abode, obtained employment, and passed the bar exam in State A.

In considering employment as it relates to an individual's domicile, the Department has analyzed whether a specific employment contract was established permanently or for an indefinite period of time. See Public Document (P.D.) 99-158. In the case of individuals who engage in temporary work assignments overseas, the Department has ruled that such individuals generally lack the intent to abandon their Virginia domicile based on the temporary nature of the activity. See P.D. 86-219 (11/3/1986), P.D. 94-353 (11/23/1994), P.D. 96-207 (8/26/1996), P.D. 02-33 (3/13/2002), P.D. 05-8 (2/1/2005), and P.D. 10-134 (7/12/2010). In P.D. 01-161 (10/23/2001), the Department held, however, that a taxpayer that takes sufficient actions to abandon his Virginia domicile can be considered to have established a new domicile even though he was temporarily employed for a definite period of time.

In the Taxpayer's case, his employment was for a one-year period with an option to renew. After the one-year period ended, the Taxpayer was offered the right to renew for another year, but instead chose to return to Virginia. The requirement of renewing employment in one-year intervals indicates that the employment was temporary in nature. Further, the nature of the Taxpayer's living arrangements while in State A did not clearly indicate the establishment of a permanent place of abode.

The Taxpayer also performed activities consistent with maintaining his Virginia domicile. While he spent most of the year in State A, he kept his motor vehicle registered in Virginia and continued to hold a Virginia driver's license. Further, the Taxpayer used a Virginia address to file his income tax returns.

After reviewing all of the evidence, I find that the Taxpayer did not take sufficient steps to abandon his Virginia domicile or acquire a State A domicile for the 2006 taxable year. While the Taxpayer did perform some activities that were consistent with a change in domicile, the temporary nature of his employment, and the failure to surrender his Virginia license and register his car in State A along with moving back to Virginia in 2007 show an intent to return to Virginia. Accordingly, I find that the Taxpayer was a domiciliary resident for the entire 2006 taxable year.

Virginia Code § 58.1-332 A, however, allows a Virginia resident a credit on the Virginia income tax return for income taxes paid to another state provided the income is either earned or business income. Based on the information provided, the Taxpayer maybe eligible for an out-of-state tax credit for the 2006 taxable year. In order to claim the credit, the Taxpayer should file a 2006 Virginia income tax return including a computation of the credit and attach a copy of the 2006 State A return and 2006 Form W-2 evidencing State A wages earned and income tax withheld.

If the Taxpayer fails to file a return, the current outstanding assessment will be upheld and become due and payable. Please send the requested return or payment of the assessment to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: *.

The Code of Virginia sections and public documents 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 * at ***.

Sincerely,

Linda D. Foster

Deputy Tax Commissioner

AR/1-4390637946.B