Was a military spouse working in Virginia in 2008 a resident, or a nonresident taxable only on Virginia-source wages?

Subject

Residency of Spouse of Military Service Member

Plain-English summary

Virginia concluded that the military spouse was a nonresident in 2008, but his wages from Virginia employment remained taxable. He had filed a resident return showing only his Virginia wages, so the Department adjusted that resident return to include all federal adjusted gross income.

On appeal, the Department separately examined domicile. The spouse had a driver's license and permanent home in another state, served as a reservist connected to that state, and spent no more than 183 days in Virginia. Although he and the service member had bought a Virginia home, registered vehicles, and he worked in Virginia, the Department found he had not abandoned his prior domicile.

The correct solution was not a partial resident return. He had to file a nonresident return reporting Virginia-source employment income within 60 days. Virginia would then process that return and issue any warranted refund.

Historical military-spouse rule

The ruling states that the Servicemembers Civil Relief Act did not extend its domicile protection to military spouses for taxable years beginning before January 1, 2009. The Department therefore analyzed the spouse's residency separately from the service member's. This is a year-specific historical determination, not a statement of current military-spouse law.

What this means for you

• Filing the resident form can require reporting all federal adjusted gross income even when the taxpayer later proves nonresidency.
• A nonresident still owes Virginia tax on wages from employment performed in Virginia.
• Military spouses should analyze their own domicile and the federal law applicable to the specific year.
• Keep orders, day counts, homes, licenses, vehicle records, employment records, and state connections.

Common questions

Q: Was the taxpayer a Virginia resident in 2008?

A: No. Virginia found he was neither a domiciliary nor an actual resident.

Q: Were his Virginia wages taxable?

A: Yes. They were Virginia-source income earned from employment in Virginia.

Q: Was a refund automatic?

A: No. He first had to file a 2008 nonresident return within 60 days, after which a refund would be issued as warranted.

Citations and references

• Va. Code §§ 58.1-301, 58.1-302, 58.1-322(A), 58.1-325, 58.1-1821, and 58.1-1824.
• 50 U.S.C. § 571 et seq.
• P.D. 96-293, P.D. 05-92, and P.D. 05-150.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-72

Original ruling text

April 21, 2015

Re: § 58.1-1824 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, 2008. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer was the spouse of a military service member stationed in Virginia in 2008. The Taxpayer was employed in Virginia, but he also earned income as a reservist serving in * (State A). He did not spend more than 183 days in Virginia. The Taxpayer filed a Virginia resident income tax return for the 2008 taxable year. The amount of federal adjusted gross income (FAGI) he reported, however, included only the wages he earned from employment in Virginia. Under review, the Department adjusted his FAGI to include all of his income and issued an assessment for additional tax due plus interest. The assessment has been paid. The Taxpayer appealed, contending he was a resident of *** (State B) and, as such, only the income he earned from his employment in Virginia was subject to Virginia income tax.

DETERMINATION

Protective Claim

Virginia Code § 58.1-1824 permits any person who has paid an assessment of taxes administered by the Department of Taxation to file a protective claim for refund within three years of the date of an assessment. Pursuant to the authority granted the Tax Commissioner under Va. Code § 58.1-1824, a protective claim for refund can be held pending the outcome of another case before the courts or the claim may be decided based upon its merits pursuant to Va. Code § 58.1-1821. As permitted by statute, the Taxpayer's request has been treated as an appeal under Va. Code § 58.1-1821.

Resident Return

Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income with FAGI. Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.

In this case, the Taxpayer filed a Virginia resident return but reported only a portion of his FAGI to Virginia. Because the computation of Virginia income tax for residents begins with FAGI, taxpayers are required to report the entire amount of FAGI on their Virginia return. See Va. Code § 58.1-322 A. Based on the type of return the Taxpayer filed, the Department appropriately adjusted the Taxpayer's FAGI to match amounts reported on his federal return.

On appeal, however, the Taxpayer contends he was a resident of State B. Virginia provides a specific form (Form 763) for nonresidents to file returns. A taxpayer who uses a return designated for Virginia residents is an indication of residency within the Commonwealth.

Residency of Spouse of Military Service Member

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 for taxable years beginning prior to January 1, 2009. In Public Document (P.D.) 96-293 (10/18/1996), the Department found that a military spouse was considered an actual resident of Virginia, subject to Virginia individual income taxation as a resident, because he resided in Virginia for more than 183 days during the taxable year. Further, the Department has ruled that residency status of a taxpayer requires analysis separate from their military spouse. See P.D. 05-92 (6/9/2005) and P.D. 05-150 (9/8/2005).

Thus, the Department must examine all the facts and circumstances regarding the military spouse in order to determine the domiciliary residence of such individual. When the spouse moves to follow military personnel to a new duty station he will generally abandon his former permanent place of abode, leave his employer, take or abandon personal property, and move his family. The spouse will establish a new permanent place of abode near the new duty station, enroll children in school, and seek employment of an indeterminate duration. The spouse will generally comply with jurisdictional authorities with regard to driving permits, vehicle registrations, voting registrations, and education requirements. The spouse will also change social, charitable, and church associations. Moreover, the military member and the spouse move with no assurance that they may move back to a former duty station.

Under the circumstances, it seems reasonable to conclude that a military spouse will establish domicile in Virginia when following military personnel to Virginia and abandon Virginia domicile when following them to the next duty station. To do otherwise would require the Department to investigate whether a military spouse had established domicile and abandoned domicile at every duty station prior to coming to Virginia.

Domicile

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. 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.

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 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.

In this case, the Taxpayer engaged in activities consistent with establishing domicile in Virginia. When his spouse was transferred to a Virginia duty station in 2006, they purchased a home and registered vehicles, and he obtained employment. Although they left Virginia in 2010 when his spouse was transferred to a duty station overseas, they continue to own the home but state that this is because the home is currently worth less than they paid for it. Also, one vehicle is still registered in Virginia because it was too expensive to ship overseas.

The Taxpayer also maintained connections to State A. He maintained a State A driver's license and still had a permanent place of abode in State A during the taxable year at issue. He currently is assigned to a military organization headquartered in State A.

The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is dispositive. A person's true intention must be determined with reference to all of the facts and circumstances of the particular case.

Although the Taxpayer established some connections to Virginia indicating an intent to establish domiciliary residency, I find that he had not abandoned his State A domicile as of the 2008 taxable year. The Taxpayer, therefore, was not subject to Virginia income tax as a domiciliary resident.

Nonresident Individuals

Under Va. Code § 58.1-325, individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. Virginia Code § 58.1-302 limits the term income and deductions from Virginia sources to the items of income, gain, loss and deductions attributable to the ownership of property in Virginia or the conduct of a business, trade, profession or occupation in Virginia. In this case, the Taxpayer had wage income from employment in Virginia. Such income was Virginia source income subject to Virginia income tax.

CONCLUSION

In this case, the Taxpayer was not an actual or domiciliary resident of Virginia during the 2008 taxable year. Although the Department correctly adjusted the Taxpayer's Virginia resident income tax return to include all of the Taxpayer's FAGI, he did not file the proper return. Because he was a nonresident with income from Virginia sources, he should have filed a nonresident return.

Based on this determination, the Taxpayer must file a nonresident return for the 2008 taxable year. The return must be submitted within 60 days of the date of this determination letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203 Attn: *. Upon receipt, the return will be reviewed and processed, and a refund issued as warranted.

While the Department concedes that the Taxpayer was not a resident of Virginia for the taxable year at issue, the Taxpayer should be aware that continuing connections with Virginia, such as registering vehicles, owning real property or other indicators of a permanent residence in Virginia, will likely 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.

The Code of Virginia sections and public documents 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/1-5601611762.M