Could a military spouse claim another state's domicile and Virginia withholding refunds when residence and intent were not established at the same time?

Subject

Military spouse did not establish the claimed out-of-state domicile

Plain-English summary

Virginia denied the 2009-2011 withholding refunds because the civilian spouse did not prove that she had established domicile in State B. A spouse could not simply elect the service member's domicile for purposes of the Servicemembers Civil Relief Act.

The taxpayer lived with her spouse's parents in State B from July through September 2008 before joining the service member in Virginia. The evidence of stronger State B ties came later: vehicle registrations began in October 2010, voter registration occurred in October 2012, and she used the parents' address for important documents.

Virginia required both personal presence in the claimed state and intent to make it a permanent home, existing at the same time. Because the later intent evidence did not coincide with the 2008 residence, the taxpayer did not establish State B domicile. She and the service member therefore did not share the same domicile for the years at issue, so the Act's military-spouse relief did not apply.

What this means for you

• A military spouse must independently establish the claimed domicile; marriage alone is not enough.
• Physical presence and intent to make a permanent home must exist simultaneously.
• Driver's licenses, voter registration, vehicle registration, addresses, and other state ties can be relevant.
• Actions taken after leaving a state may not prove domicile during an earlier residence period.

Citations and references

• Servicemembers Civil Relief Act, 50 U.S.C. § 571 et seq., as cited in the ruling.
• Coopers Adm'r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917).
• Virginia Tax Bulletins 9-10 and 10-1, discussed in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-124

Original ruling text

July 25, 2014

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you appeal the Department's denial of refund claims filed by * (the "Taxpayer") for individual income tax withheld for the taxable years ended December 31, 2009 through 2011. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer's spouse, an active duty military service member, moved from * (State A) to Virginia in 2008 after he was reassigned to a duty station in Virginia. The Taxpayer, however, stayed with the spouse's parents in *** (State B) from July to September 2008 before coming to Virginia to be with him. In April 2012, the Taxpayer filed nonresident claims for individual income tax withheld for each of the taxable years in question. The Taxpayer represented that both she and her spouse were domiciliary residents of State B. Under review, the Department denied the claims on the basis that the information provided was not sufficient to prove that the Taxpayer had established domicile in State B. The Taxpayer appealed, contending that she was eligible to receive the refunds because she had established domicile in State B.

DISCUSSION

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 the 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 the 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 spouse cannot simply elect to claim the service member's domicile. In order to claim a domicile in another state, the spouse must have (i) resided in the other state with the intent to make a permanent home there, and (ii) not abandoned that domicile when moving to reside with the service member or for any other reason. 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.

In general, the Department will not seek to tax the spouse of a military service member so long as the spouse maintains sufficient connections with the service member's domiciliary state to indicate intent to maintain domicile there. Such connections would include obtaining and retaining a driver's license, registering to vote and voting in local elections, registering an automobile, and exercising other benefits or obligations of a particular state. As long as the spouse of a military service member maintains such connections, he or she would be considered to be a resident of the other state even though they work, live, and establish a place of abode 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 a domicile. In Coopers Adm'r v. Commonwealth , 121 Va. 338, 93 S.E 680 (1917), the Virginia Supreme Court ruled that acquiring domicile in another state requires both intent and personal presence. In addition, these two elements must exist simultaneously. Id.

In this case, the Taxpayer provided some evidence indicating an intent to establish domicile in State A. Beginning in October 2010, the Taxpayer and her spouse registered several vehicles in State B. The Taxpayer also registered to vote in State B in October 2012. In addition, the Taxpayer states that she used her spouse's parents' State B address as a permanent address for important documents.

The Taxpayer resided for a short time in State B from July to September 2008. The other actions taken by the Taxpayer to establish domicile in State B did not occur until after this last period of residency was over. In the Department's opinion, therefore, the elements of intent and personal presence did not exist concurrently and as a result, the Taxpayer did not establish domicile in State B. Accordingly, the Taxpayer and the service member did not share the same domicile for the taxable years at issue, and the Taxpayer did not qualify for relief under the provisions of the Act. Therefore, the Department's denial of the refunds is upheld.

The Code of Virginia section and public documents and tax bulletins cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions 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,

Craig M. Burns

Tax Commissioner

AR/1-5719788545.M