Was a worker entitled to refunds when her employer withheld Virginia tax after she abandoned Virginia domicile for a foreign assignment?

Subject

Taxpayer's employer incorrectly withheld Virginia income tax from wages.

Plain-English summary

Virginia approved refunds of tax incorrectly withheld from the worker's wages for 2010 through 2013. Her employer transferred her abroad in 2009 but continued withholding Virginia income tax.

The worker established a permanent home in the foreign country, obtained a resident identification card, and used the foreign address on federal returns. She also took concrete steps to abandon Virginia: she surrendered her Virginia driver's license, sold her vehicle, ended her apartment lease, moved all personal property out of Virginia, and had last voted there in 2008.

Those facts showed both abandonment of the old domicile and acquisition of a new one. Because she was not a Virginia domiciliary resident during the refund years and filed the claims on time, the Department said it would refund the Virginia tax withheld.

What this means for you

• Employer withholding does not itself establish Virginia residency or final tax liability.
• A foreign assignment can change domicile when the move is supported by physical presence, indefinite intent, and abandonment of Virginia ties.
• File the correct nonresident withholding-refund form within the applicable deadline.
• Keep assignment letters, foreign residency documents, leases, license surrender, vehicle-sale records, moving records, voting history, and federal-return addresses.

Common questions

Q: What facts showed abandonment of Virginia domicile?

A: The worker ended her lease, moved her property, sold her vehicle, surrendered her driver's license, and stopped voting in Virginia.

Q: What showed a new foreign domicile?

A: She lived in a permanent foreign home, held a resident identification card, and used that address on federal returns.

Q: Why were the refunds available?

A: The withholding was incorrect and the worker filed timely refund claims for the years at issue.

Citations and references

• Va. Code § 58.1-302.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-73

Original ruling text

April 21, 2015

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek a refund of the individual income tax withheld from wages paid to * (the "Taxpayer") for the taxable years ended December 31, 2010 through 2013.

FACTS

In February 2009, the Taxpayer's employer transferred the Taxpayer to * (Country A). The Taxpayer surrendered her Virginia driver's license and sold her motor vehicle. She cancelled the lease on her apartment and moved all of her personal property to a relative's *** (State A) residence. The Taxpayer's employer, however, withheld Virginia income tax from the Taxpayer's wages while she worked in Country A.

In November 2013, the Taxpayer ceased working for her employer and moved to * (State B) where her relative resided. The Taxpayer filed Virginia Special Nonresident Claim for Individual Income Tax Withheld (Form 763-S) returns indicating she was a domiciliary resident of Country A during the 2010 through 2013 taxable years. The Taxpayer requests a refund of the income tax withheld for the periods at issue.

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 has 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 took a number of actions to establish domicile in Country A in 2009. She was transferred to a position in Country A by her employer and established a permanent place of abode. She applied for and received a resident identification card and filed her federal tax returns using her Country A address.

The Taxpayer also took the steps necessary to abandon her Virginia domicile. She sold her automobile and surrendered her Virginia driver's license. She last voted in Virginia in 2008. She cancelled the lease of her Virginia residence and moved all her personal property out of Virginia.

Based on the facts presented, the Taxpayer was not a domiciliary resident of Virginia for the 2010 through 2013 taxable years. Therefore, the Taxpayer's employer incorrectly withheld Virginia income tax from her wages. Because the Taxpayer timely filed the refund requests, the Department will issue a refund of any Virginia income taxes withheld for the 2010 through 2013 taxable years.

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 Commissione r

AR/1-5834119750.B