Did a worker domiciled in another state become a Virginia resident by keeping a Virginia home for at least 183 days, and could he claim credit for tax paid elsewhere?

Plain-English summary

The taxpayer was a Virginia actual resident because he maintained a Virginia home for at least 183 days, but he could claim a limited credit for income tax paid to another state on out-of-state income.

The taxpayer did not file a 2015 Virginia return. After receiving IRS information, the Department determined he was a Virginia resident and issued an assessment based on the best information available.

Domicile elsewhere did not prevent actual residency

Virginia Code § 58.1-302 recognizes two independent resident categories. A domiciliary resident treats Virginia as a permanent home. An actual resident maintains a Virginia place of abode for more than 183 days during the year.

The Department accepted that the taxpayer remained domiciled in another state. Even so, he kept a Virginia abode for at least 183 days in 2015. That made him a Virginia actual resident and subjected his income to Virginia tax.

Tax paid to another state could generate a credit

Virginia Code § 58.1-332(A) allows a resident credit when the taxpayer is liable for and pays another state's income tax on qualifying earned, business, or capital-gain income sourced outside Virginia but also taxed by Virginia.

The record showed that the taxpayer paid income tax to another state and that the income was sourced outside Virginia. He was therefore eligible to compute the credit on a Virginia resident return.

The credit was not automatically equal to all tax paid elsewhere. It was limited to the lesser of:

• the income tax actually paid to the other state; or
• the Virginia income tax attributable to the out-of-state income.

The Virginia limitation used a fraction: income taxed by the other state divided by Virginia taxable income, multiplied by Virginia tax liability.

A resident return was required to correct the estimate

Because no Virginia return had been filed, the Department's assessment used the best information available under § 58.1-111. The taxpayer was directed to file a 2015 resident return within 30 days so the Department could calculate the actual liability and other-state credit and adjust the assessment as warranted.

What this means for you

Workers temporarily assigned to Virginia

You can remain domiciled elsewhere and still become a Virginia actual resident. Track the days you maintain a Virginia place of abode; reaching the statutory threshold can create resident filing obligations.

Virginia residents paying another state's income tax

File the Virginia resident return and compute the credit rather than simply subtracting the full other-state tax. The credit ceiling depends on the Virginia tax attributable to the same out-of-state income.

Nonfilers receiving an estimated assessment

An assessment based on IRS or other available information is not a substitute for your return. Filing a complete return with sourcing and credit support is how the Department determines whether an adjustment is warranted.

Common questions

Q: Did the taxpayer abandon his out-of-state domicile?
A: No. The Department accepted that he remained domiciled elsewhere.

Q: Why was he still a Virginia resident?
A: He maintained a Virginia place of abode for at least 183 days, making him an actual resident.

Q: Could he claim all tax paid to the other state?
A: Not necessarily. The credit was capped at the lesser of the other-state tax paid or Virginia tax attributable to the out-of-state income.

Q: Was the original assessment final?
A: It was proper based on the information available, but the Department would adjust it after reviewing the taxpayer's Virginia resident return.

Citations and references

• Va. Code § 58.1-302 — domiciliary and actual residents
• Va. Code § 58.1-332(A) — credit for income tax paid to another state
• Va. Code § 58.1-111 — assessment based on best information available

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 19-119

Original ruling text

October 4, 2018

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond 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, 2015.

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 2015 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 to determine if his income was taxable in Virginia. Based on the information received, the Department determined that the Taxpayer was a Virginia resident for the 2015 taxable year and issued an assessment. The Taxpayer appeals, contending he was a resident of * (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.

The information provided indicates the Taxpayer remained a domiciliary resident of State A in 2015, but maintained a place of abode in Virginia for more than 183 days. As indicated above, the Taxpayer would be considered to be a resident of Virginia for income tax purposes.

Credit for Tax Paid to Another State

Virginia Code § 58.1-332 A allows a Virginia resident who has become liable for and paid an income tax in another state to claim a credit on their Virginia return provided the income is either earned or business income or gain from the sale of a capital asset and is derived from sources outside of Virginia and subject to Virginia’s income tax.

The information provided indicates the Taxpayer paid income tax to State A in 2015, and his income was sourced to the * (State B), not Virginia. Therefore, he was eligible to claim a credit for income tax paid to State A per Virginia’s statutes.

The Taxpayer should be aware that 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 outside of Virginia. 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.

CONCLUSION

The Taxpayer was an actual resident of Virginia for the 2015 taxable year because he maintained a place of abode in Virginia for 183 days or more. As such, the Taxpayer’s income was subject to Virginia income tax, and the Department was correct in issuing an assessment.

The assessment at issue was 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, including a credit for tax paid to State A. Therefore, he should file a 2015 Virginia resident income tax return. 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 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.

The Code of Virginia sections 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/2018C

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