Was a taxpayer who worked 165 days in another state still a Virginia resident when he spent 200 days in Virginia and kept his home, license, vehicles, and voting ties there?

Plain-English summary

Virginia found the taxpayer to be both a domiciliary resident and an actual resident for 2013. Although he worked for an out-of-state university and spent 165 days in that state, he spent 200 days in Virginia and returned to the home he shared with his wife. He also kept Virginia vehicle registrations, a Virginia driver's license, and longstanding Virginia voter registration and voting activity.

He therefore had to file a Virginia resident return. Because his out-of-state income was primarily earned there and he paid that state's individual income tax, he could claim Virginia's credit for qualifying tax paid to another state. The credit was limited to the lesser of the other state's tax or the Virginia tax imposed on that income.

Common questions

Did out-of-state employment change the taxpayer's domicile? No. The ruling found insufficient evidence that he abandoned Virginia.

Why was he also an actual resident? He spent 200 days in Virginia, exceeding the 183-day threshold while maintaining a place of abode.

Could he recover every dollar paid to the other state? Not necessarily. Virginia's credit is subject to a statutory limitation based on the tax paid and Virginia tax on the same income.

Citations and references

• Va. Code § 58.1-302
• Va. Code § 58.1-332 A
• Va. Code § 58.1-111
• P.D. 97-301 (July 7, 1997)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-165

Original ruling text

September 26, 2018

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 year ended December 31, 2013.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia income tax return for the 2013 taxable year. A review of the Department’s records showed that the Taxpayer had not filed a return. The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia. Based on the information received, the Department issued an assessment. The Taxpayer appeals, contending he resided in * (State A), and paid income tax to State A.

DETERMINATION

Residency

Two classes of residents, a domiciliary resident and an actual resident, are set forth in Virginia 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 Department must conclude that he or she intended to remain indefinitely in Virginia.

The Taxpayer established some connections with State A indicating an intent to establish domicile. He states that he relocated to State A in July 2012 for employment with a State A university and that he was living in State A until June 2013. The Taxpayer also indicates he was in State A 165 days during the 2013 taxable year and he filed a nonresident State A return.

The Taxpayer also maintained some connections with Virginia. In addition to spending 200 days in Virginia in 2013, the Taxpayer returned to a home he shared with his wife. He registered his vehicles in Virginia and maintained a Virginia driver’s license since 1997. The Taxpayer also states that he is registered to vote in Virginia and has participated in every Virginia election since 1971.

As indicated above, an individual does not have to work or live in Virginia in order to be subject to Virginia income tax. As a resident of Virginia, the Taxpayer was required to file a 2013 income tax return.

Credit for Tax Paid in Another State

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 or gain from the sale of a capital asset, derived from sources outside Virginia, and subject to Virginia’s income tax. Virginia law does not necessarily allow a taxpayer to claim a credit for the total amount of tax paid to another state. Rather, the credit is limited to the lesser of the amount of tax actually paid to the other state or the amount of Virginia income tax actually imposed on the taxpayer on the income earned or derived in the other state. See P.D. 97-301 (7/7/1997). The limitation is computed by multiplying the individual’s Virginia tax liability by a fraction, the numerator of which is the income upon which the other state’s tax is imposed, and the denominator of which is Virginia taxable income.

In this case, the Taxpayer paid individual income tax to State A. Because the income was primarily earned from sources in State A, the Taxpayer would be eligible to claim the credit pursuant to Virginia Code § 58.1-322 A for tax paid to State A on earned or business income on a Virginia resident income tax return.

CONCLUSION

After carefully considering all of the evidence presented, I find that there is insufficient evidence to support the abandonment of the Taxpayer’s Virginia domicile, and further find that he was an actual and domiciliary resident of Virginia for the 2013 taxable year.

The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer, however, may have information that better represents his Virginia income tax liability for the taxable year at issue. Therefore, he should file a 2013 Virginia income tax return and claim credit for income tax paid to State A. The return should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *. The return will be reviewed and processed, and the assessment will be adjusted as warranted. If the return is not received within the allotted time, the assessment will be adjusted based on the information provided.

If the adjusted assessment creates a financial hardship, the Taxpayer may pursue an offer in compromise based on doubtful collectibility. To begin that process, the Taxpayer should complete the enclosed Offer in Compromise Form and Financial Information Statement. The completed form and statement will allow the Department to review and analyze the Taxpayers' financial situation. Upon completion of that review, a response will be issued to the Taxpayer. The Taxpayer also has the option to request a payment agreement with the Department's Collections Unit. The Collections Unit may be contacted at (804) 367-8045.

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/1631.A