Did buying an out-of-state home and changing a driver's license and voter registration prove that a taxpayer abandoned Virginia domicile?

Subject

Virginia domicile was not abandoned despite an out-of-state home

Plain-English summary

Virginia found that the taxpayer remained a domiciliary resident for 2011 and 2012. He took several steps toward establishing domicile in another state: he stayed there beginning in January 2011, bought a home in July, and obtained that state's driver's license, vehicle registration, and voter registration in September.

Those steps did not prove that he abandoned Virginia. He continued to jointly own the Virginia marital home, stayed there when returning for business, and operated his wholly owned company's main office from the property. The company paid rent to his wife for the office, and its 2011 return attributed 98% of payroll, including his wages, to Virginia.

He also retained Virginia-registered personal and business vehicles. Credit-card records showed Virginia purchases on days when he said he was elsewhere, and his explanation that his daughter used the card did not substantiate his claimed days outside Virginia. Many federal tax documents continued to go to the Virginia residence.

The Commissioner acknowledged the new out-of-state connections but found the taxpayer's Virginia personal and professional ties inconsistent with abandoning domicile. Much of the evidence was contradictory, inconclusive, or inadequate.

Result: the 2011 and 2012 assessments were upheld. Payment within 30 days of the revised bill would stop further interest.

What this means for you

• Establishing a new home is only half of a domicile change; the old domicile must also be abandoned without an intent to return.
• A jointly owned available home, family presence, business office, vehicles, and mailing records can show continuing Virginia ties.
• Business payroll and base-of-operations reporting should be consistent with a claimed move.
• Maintain reliable travel and purchase evidence if actual days in Virginia are disputed.

Common questions

Q: Did the out-of-state license and voter registration establish the move by themselves?

A: No. Virginia considered them but weighed them against the taxpayer's continuing home, business, vehicle, family, and documentary ties.

Q: What is a domiciliary resident?

A: The ruling described it as someone whose permanent residence is Virginia and who intends to return even while living elsewhere.

Q: Who had the burden of proving the change?

A: The taxpayer claiming that Virginia domicile had been abandoned.

Citations and references

• Va. Code §§ 58.1-302 and 58.1-413(3).
• 23 VAC 10-120-200(B)(2).
• United States v. Minnesota Department of Revenue, 97 F. Supp. 2d 973 (2000).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-235

Original ruling text

December 22, 2015

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you seek correction of the Virginia individual income tax assessments issued to * (the "Taxpayer") for the taxable years ended December 31, 2011 and 2012. I apologize for the delay in responding to your appeal.

FACTS

In January 2011, the Taxpayer, a Virginia resident, went to stay with a friend in * (State A). He purchased a residence in State A in July 2011. In September 2011, the Taxpayer acquired a State A driver's license, and registered a vehicle and to vote in State A. He continued to own two vehicles registered in Virginia.

The Taxpayer was the sole owner of * (VCP). VCP was based in an office in the Virginia residence owned by the Taxpayer and his spouse. VCP paid rent to the wife for use of the space. The Taxpayer stayed at the Virginia residence when in Virginia for business. The Taxpayer and his wife filed separate Virginia income tax returns for the 2011 and 2012 taxable years.

The Taxpayer had a credit card for business expenses in which transactions were made in Virginia on days when he indicated he was either in State A or elsewhere on business. Many of these transactions were for personal rather than business expenses.

The Taxpayer was audited and the Department concluded that he was a domiciliary resident of Virginia. As a result, the Department issued assessments for additional tax and interest for the 2011 and 2012 taxable years. The Taxpayer appeals the assessments, contending that he was not an actual or domiciliary resident 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 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. Additionally, a person who is not a domiciliary resident of Virginia, but who stays in Virginia for an aggregate of more than 183 days is also 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, situs of real or 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 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. A taxpayer has the burden of proving that he or she abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Tax Commissioner must conclude that he or she intended to remain indefinitely in Virginia.

The Taxpayer performed a number of actions to establish domicile in State A. He acquired a place of abode in State A. He registered a motor vehicle and registered to vote in State A. The Taxpayer surrendered his Virginia driver's license and obtained a State A license. He filed his Virginia tax returns separately from his wife.

The Taxpayer also maintained numerous connections with Virginia. In addition to having the majority of his federal tax documents sent to the Virginia residence, his continuing connections include ownership in a house, maintaining a motor vehicle, operating a business, and family living in Virginia. Where a Virginia domiciliary resident leaves the state but retains significant connections with the Commonwealth, the Department will consider whether the taxpayer substantially severed his Virginia connections upon his departure and took steps to establish significant connections with his new place of residence, or maintained his Virginia connections in readiness for his return.

The Taxpayer asserts he was estranged from his wife and his child is an adult. In Public Document (P.D.) 00-151 (8/18/2000), the Department found it reasonable under specific facts and circumstances for a taxpayer domiciled outside Virginia to retain ownership in a family home when a spouse and children remained domiciled in Virginia. The Taxpayer asserts that he moved out of the marital home because he and his wife are estranged and will not divorce for religious reasons. Without an executed separation agreement, a spouse is free to return to the marital home if circumstances change without any legal arrangement or declaration.

The Taxpayer continued to own a home with his wife. In fact, VCP rented office space in the family home. The Taxpayer claims the rent compensated his wife instead of spousal support, which would be required through a legal separation agreement. The Taxpayer also admits he stayed in the marital home when he returned to Virginia. The Taxpayer had a permanent place of abode to return to in Virginia. Staying at home jointly owned with an estranged spouse when visiting Virginia is indicative of retaining a Virginia domicile. See P.D. 06-118 (10/16/2006).

VCP's main business office continued to operate in Virginia. The Taxpayer claims that his business could be operated from any location and asserts that he works primarily out of his State A location and at client locations. The Taxpayer states that his primary purpose for maintaining the office in Virginia was to employ his daughter. However, the Taxpayer admits he returned to the Virginia office on a number of occasions during 2011. Under Va. Code § 58.1-413 3, VCP's income tax returns show that 98% of its payroll, including the Taxpayer's wages, was attributed to Virginia for the 2011 taxable year.

When an employee performs services both within and without the Commonwealth, compensation will be deemed paid or accrued at the employee's base of operations, the place from which the employment is directed or controlled, or the employee's residence. See Va. Code § 58.1-413 3. By attributing such a high percentage of compensation to Virginia, VCP appears to be indicating the Taxpayer's based of operations was in Virginia or the employment was directed or controlled in Virginia. Title 23 VAC 10-120-200 B 2 defines a "base of operations" to be "a place of more or less permanent nature from which the employee starts his work and to which he customarily returns . . ." Thus, the facts indicate the Taxpayer intended to return to VCP's office located in his Virginia residence.

The Taxpayer personally owned two vehicles registered in Virginia and two vehicles registered in Virginia belonged to his business. He states that the cars registered in Virginia under both his and the businesses' name were for his and his daughter's business use. The fact remains that the Taxpayer had a motor vehicle in readiness for his return.

In order to verify the Taxpayer's claims as to the amount of time he spent in Virginia, the Department requested evidence of his personal purchases. In response, the Taxpayer provided credit card statements. These statements show significant purchases in Virginia throughout the taxpayer year. The Taxpayer claims this was a business account also used by his daughter who used the card for personal expenses. Accordingly, the documentation provided fails to substantiate the Taxpayer's claim concerning the number of days in spent in Virginia.

The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. In order for the change of domicile to occur, there must be an abandonment of the old domicile and the acquisition of a new one. This change must be exhibited by an individual's intent and conduct. See United States of America v. Minnesota Department of Revenue , 97 F. Supp. 2d 973 (2000).

Although the Taxpayer may have performed activities to establish domicile in State A, he maintained substantial personal and professional ties with the Commonwealth that appear to be inconsistent with abandoning his Virginia domicile. Further, much of the evidence is contradictory, inconclusive, or inadequate. Under the circumstances, I must conclude the Taxpayer was a domiciliary resident of Virginia during the 2011 and 2012 taxable years.

Accordingly, the assessments for the 2011 and 2012 taxable years are upheld. An updated bill, with interest accrued to date, will be mailed to the Taxpayer shortly. No further interest will accrue provided the outstanding balance is paid within 30 days from the date indicated on the revised bill.

The Code of Virginia sections and public document 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