Did an employee abandon Virginia domicile by moving to another state for work while keeping a Virginia home, vehicles, and driver's license?

Subject

Taxpayer did not demonstrate clear intent to abandon his Virginia domicile.

Plain-English summary

Virginia upheld the 2006 and 2007 resident assessments because the taxpayer did not prove that he abandoned Virginia domicile. His employer transferred him to State A in 2004, where he rented an apartment, received financial documents, and filed his federal return from that address.

He also kept strong Virginia connections: a house, vehicles registered in Virginia, and a Virginia driver's license renewed in November 2007. Virginia treated the license renewal and the continued use of lower-cost Virginia vehicle registration as strong evidence that he intended to retain the benefits of Virginia residency.

The taxpayer surrendered the Virginia license in October 2008, but that later action did not establish abandonment during 2006 and 2007. The assessments were upheld.

Virginia separately said he appeared eligible for a credit for qualifying income tax paid to State A. He had 30 days to provide the State A returns and a credit computation before an updated bill issued.

What this means for you

• Moving for work and renting elsewhere do not automatically change domicile.
• Keeping a Virginia home, vehicle registrations, and driver's license can show continued Virginia intent.
• Actions taken after the tax years may not prove an earlier domicile change.
• A resident assessment can coexist with a credit for qualifying income tax paid to another state.

Common questions

Did the State A apartment and job establish a new domicile by themselves?

No. Virginia weighed them against the taxpayer's continuing Virginia home, vehicles, license, and financial contacts.

Were the assessments canceled because State A also taxed the income?

No. Virginia upheld the assessments but allowed documentation for a possible out-of-state tax credit.

Citations and references

• Va. Code §§ 46.2-323.1 and 58.1-332(A).
• P.D. 02-149.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-5

Original ruling text

January 11, 2011

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 years ended December 31, 2006 and 2007. I apologize for the delay in the Department's response.

FACTS

The Taxpayer was a domiciliary resident of Virginia. In May 2004, he was relocated by his employer to * (State A). The Taxpayer rented an apartment and received financial documents in State A. He also filed his federal income tax return from his State A address. The Taxpayer continued to maintain his house in Virginia, owned motor vehicles registered in Virginia, and he held a Virginia driver's license that he renewed in November 2007.

The Department received notification from the Internal Revenue Service that financial documents were mailed to the Taxpayer's home in Virginia during the 2004 through 2007 taxable years. The Department requested additional information from the Taxpayer to determine if his income was taxable in Virginia. When no response was received, the Department issued assessments for the 2006 and 2007 taxable years. The Taxpayer appeals the assessments, contending he was a domiciliary of State A during the taxable years at issue, and his income was not taxable in Virginia.

DETERMINATION

In order to change from one legal domicile to another legal domicile, there must be (1) actual abandonment of the old domicile, coupled with 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 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 or domicile.

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 his or her burden, the Commissioner must conclude that he or she intended to remain indefinitely in Virginia.

The Taxpayer performed a number of activities consistent with establishing domicile outside Virginia. He accepted his employment transfer to State A and established a place of abode there.

The Taxpayer also maintained a number of connections with Virginia that would indicate intent to retain his Virginia domicile. He continued to maintain his home and vehicles registered in Virginia. He also held and renewed his Virginia driver's.

Virginia Code § 46.2-323.1 "No driver's license . . . shall be issued to any person who is not a Virginia resident." Every person applying for a driver's license must execute and furnish to the Commissioner of the Department of Motor Vehicles a statement that certifies the applicant is a Virginia resident. Virginia Code § 46.2-323.1 states, "No driver's license . . . shall be issued to any person who is not a Virginia resident." In fact, this section goes on to state that every person applying for a driver's license must execute and furnish to the Department of Motor Vehicles (DMV) a statement which certifies that the applicant is a Virginia resident. Further, the Department has found that obtaining or renewing a Virginia driver's license is considered to be a strong indicator of intent to retain domiciliary residency in Virginia. See P.D. 02-149 (12/09/2002).

Further, according to the auditor, the Taxpayer indicated that he kept his cars registered in Virginia because the insurance rate was lower than in State A. The Department considers a taxpayer's continued connections to Virginia for the purpose of taking advantage of favorable Virginia laws in order to gain the benefits of lower costs available to Virginia residents to be strong intent of a taxpayer's desire to be a domiciliary resident of Virginia. While the Taxpayer surrendered his Virginia driver's license to State A in October 2008, his vehicles remain registered at his Virginia address.

After reviewing all the evidence in this case, it its my determination that the Taxpayer did not demonstrate clear intent to abandon his Virginia domicile during the taxable years at issue. While the Taxpayer did take some steps consistent with establishing domicile in State A, he clearly retained his connections with Virginia and desired to retain the benefits of Virginia residency. Accordingly, the assessments for the 2006 through 2007 taxable years are upheld.

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. Based on the information provided, the Taxpayer is eligible for an out-of-state tax credit for the 2006 and 2007 taxable year. The Taxpayer should provide copies of there State A's income tax returns including a computation of the credit within thirty days of the date of this letter in order. If the requested information is not received, an updated bill will be issued.

In addition, the Taxpayer should be aware that continuing connections with Virginia, such as maintaining vehicle registrations and using a Virginia address for primary financial documents, or other indicators of a permanent residence in Virginia, will likely continue to result in future contacts by the Department with respect to the situs of the Taxpayer's domicile. As in any determination, a change in the facts and circumstances could result in a change in the Department's determination in subsequent taxable years.

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 section and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website.

Sincerely,

Craig M. Burns

Tax Commissioner

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