Could a military spouse claim Virginia's 2009 exemption after obtaining Virginia licenses, vehicle registration, and voter registration?

Plain-English summary

Virginia denied the military spouse's 2009 withholding refund because she had established Virginia domicile before that year. She moved to Virginia with her service-member spouse, worked full time, registered a vehicle, renewed a Virginia driver's license, and registered to vote.

Virginia found that by 2008 she had abandoned all relevant connections with State A. Attempts by the service member to transfer elsewhere did not prove that she lacked an intention to make Virginia her domicile.

The 2009 military-spouse rule required the spouse and service member to share the same domicile. They did not, so the exemption did not apply. The ruling also found that her 2010 State A license and vehicle transfer did not abandon Virginia domicile while she kept a permanent Virginia abode and full-time employment.

What this means for you

• The spouse's domicile is analyzed separately from the service member's.
• A shared domicile is required for the military-spouse exemption described here.
• Licenses, voting, vehicles, housing, and employment can outweigh stated intent.
• Changing documents alone may not abandon domicile while major ties remain.

Citations and references

• 50 U.S.C. § 571 et seq. (as cited in the ruling).
• Virginia Tax Bulletin 9-10 (Nov. 12, 2009).
• Virginia Tax Bulletin 10-1 (Jan. 29, 2010).
• P.D. 05-92 (June 9, 2005); P.D. 05-150 (Sept. 8, 2005).

Subject

The Servicemembers Civil Relief Act

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-114

Original ruling text

June 21, 2011

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek a refund of the Virginia individual income tax withheld for * (the "Taxpayer") for the taxable year ended December 21, 2009. I apologize for the delay in the Department's response.

FACTS

The Taxpayer was a * (State A) resident who attended college in Virginia. In March 2004, the Taxpayer obtained a Virginia driver's license. After graduating in May 2004, the Taxpayer returned to State A. In June 2005, the Taxpayer returned to Virginia and married a nonresident military service member, who was domiciled in State A. The couple moved into a residence in Virginia because the service member was stationed in an adjacent state. The Taxpayer obtained full-time employment and registered a motor vehicle in Virginia. The Taxpayer renewed her Virginia driver's license and registered to vote in Virginia in 2008.

In April 2010, the Taxpayer transferred ownership of a motor vehicle to the service member and the vehicle was registered in State A. She also surrendered her Virginia driver's license for a State A driver's license while continuing to reside in Virginia.

The Taxpayer filed a claim for refund of nonresident withholding tax for the 2009 taxable year. The Department denied the claim on the basis that the Taxpayer abandoned her State A domicile in 2005, and no longer shared the same domicile as the service member. The Taxpayer appeals the assessment, contending she was complying with Virginia laws when obtaining a Virginia driver's license and registering to vote in Virginia, and she never intended to establish domicile in Virginia.

DETERMINATION

The Servicemembers Civil Relief Act (the "Act"), codified at 50 U.S.C. § 571 et seq ., provides that military and naval personnel do not abandon their legal domicile solely by complying with military orders that station them in a different state or country whether permanently or temporarily. The Act did not apply to the spouses of military and naval personnel before 2009. The Department has ruled that residency status of a taxpayer requires analysis separate from their military spouse. See Public Document (P.D.) 05-92 (6/9/2005) and P.D. 05-150 (9/8/2005).

The Act was amended, effective for 2009 taxable year and thereafter, to provide that a spouse can neither lose nor acquire domicile or residence in a state when the spouse is present in the state solely to be with the service member in compliance with the service member's military orders if the residence or domicile is the same for both the service member and spouse. See Virginia Tax Bulletin (VTB) 9-10 (11/12/2009) and VTB 10-1 (1/29/2010).

In VTB 10-1, the Department explained that the domicile of a military spouse must be the same as the service member in order to be exempt from Virginia's income tax. The determination of a military spouse's domicile requires analysis of the facts and circumstances. The elements that may be examined include:

1. Whether the person claiming exemption is married to a service member who is present in Virginia pursuant to military orders.

2. The service member's domicile.

3. The spouse's domicile and the circumstances in which it was established.

4. The extent to which the spouse has maintained contacts with the domicile.

5. Whether the spouse has taken any action in Virginia that is inconsistent with maintaining a domicile elsewhere.

The Taxpayer performed actions typical of a military spouse when she relocated and accepted employment in Virginia. The Taxpayer contends that she was merely complying to Virginia laws when registering to vote, registering her motor vehicle and obtaining a Virginia driver's license. She also argues that she and her husband have attempted to transfer to another duty station on several occasions and she never intended to establish domicile in Virginia.

The Department determines a taxpayer's intent through the information provided. A taxpayer has the burden of proving that he or she has established or abandoned his or her Virginia domicile. In this case, the Taxpayer took sufficient steps to establish a Virginia domicile while abandoning all relevant connections with State A by 2008. The fact that the service member made several attempts to transfer his duty station outside Virginia is not sufficient to show that the Taxpayer never intended to become a domiciliary resident of Virginia. Consequently, the Department must conclude that the Taxpayer intended to abandon State A and establish her domicile in Virginia prior to 2009. As such, the refund is denied.

Further, the Taxpayer took steps to change her domicile back to State A in 2010. While she did obtain a State A driver's license, she continued to reside in a permanent place of abode and was employed full time for an indefinite period in Virginia. Under such circumstances, the Taxpayer would not be considered to abandon her Virginia domicile.

The Code of Virginia section, tax bulletins 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 * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4592301884.D