Can a person living and working in D.C. remain domiciled in Virginia, and which D.C. taxes qualify for Virginia's out-of-state credit?

Plain-English summary

A taxpayer began living and working in D.C. in 2012, had D.C. tax withheld, and filed a D.C. resident return for 2014. But she kept a Virginia driver's license and voter registration, received tax documents at a Virginia address, co-owned a Virginia-registered vehicle, and filed a full-year Virginia resident return for 2013 after the D.C. move.

The Department found she remained domiciled in Virginia. Because she also maintained a D.C. home for at least 183 days, she was both a Virginia domiciliary resident and a D.C. actual resident. Virginia allowed an out-of-state credit only for D.C.-source income — not income from services performed at a Virginia office.

Why the D.C. move did not end Virginia domicile

Virginia requires proof of both abandonment of the old domicile and establishment of a new one (Va. Code § 58.1-302). The D.C. job, home, withholding, and resident return supported a new D.C. connection. The retained Virginia conduct undermined abandonment:

• continued Virginia driver's license and voter registration;
• Virginia address on tax-reporting documents;
• a Virginia-registered jointly owned vehicle; and
• a full-year 2013 Virginia resident return after she had begun living and working in D.C.

The ruling particularly treats continued use or renewal of a Virginia license as a strong indicator that the taxpayer wants the benefits and legal protections associated with Virginia residency. The taxpayer therefore failed to prove a completed domicile change.

Dual resident returns and the credit limit

D.C., like Virginia, treats a person maintaining a place of abode for at least 183 days as a resident. The taxpayer therefore had to file resident returns in both jurisdictions.

Va. Code § 58.1-332 can relieve double taxation, but only for qualifying income derived from sources outside Virginia and otherwise taxed by Virginia. The Department questioned whether some wages came from services performed at a Virginia office. Those wages would be Virginia-source income and could not support the D.C. credit even if D.C. taxed them.

The taxpayer was instructed to file a 2014 Virginia resident return within 30 days and attach a schedule identifying income that was not Virginia-source. Virginia would use only that qualifying amount to compute the credit and adjust the best-information assessment.

What this means for you

• Living in D.C. does not automatically abandon Virginia domicile. Retained licenses, registrations, addresses, and return positions matter.
• You can be a resident of both jurisdictions under different tests. Domicile and the 183-day abode rule can overlap.
• The credit follows source, not merely where tax was paid. Virginia-office wages remain Virginia-source and do not qualify for the D.C. credit.
• Document work location. A schedule and employment records should separate Virginia services from D.C.-source earnings.

Common questions

Q: Did the D.C. resident return prove the taxpayer was no longer a Virginia resident?

A: No. It supported D.C. residency, but the retained Virginia connections prevented her from proving abandonment of Virginia domicile.

Q: Can a taxpayer file resident returns in both Virginia and D.C.?

A: Yes. Here Virginia domicile and D.C.'s 183-day actual-resident rule required both.

Q: Does all income taxed by D.C. qualify for Virginia's credit?

A: No. The credit is limited to qualifying income derived outside Virginia. Compensation for services performed in a Virginia office is Virginia-source.

Citations and references

• Va. Code § 58.1-302 — domiciliary and actual residency
• Va. Code § 46.2-323.1 — driver's-license residency certification
• Va. Code § 58.1-332(A) — out-of-state tax credit and source limitation
• Va. Code § 58.1-341(A)(1) — Virginia resident return
• Va. Code § 58.1-111 — best-information assessment
• D.C. Code §§ 47-1801.04(42), 47-1805.02(1) — D.C. actual residency and filing
• Related Virginia rulings cited: P.D. 00-151, P.D. 02-149, P.D. 10-249

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 19-79

Original ruling text

August 2, 2019

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, 2014. I apologize for the delay in responding to your appeal.

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 2014 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 her income was taxable in Virginia. After reviewing the information provided, the Department issued an assessment. The Taxpayer appeals, contending she was a resident of the District of Columbia (D.C.).

DETERMINATION

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 has provided some evidence indicating her intent to establish domicile in D.C. In 2012, the Taxpayer obtained employment in D.C. and began residing there. She had D.C. taxes withheld from her wages, and she filed a D.C. resident income tax return for the 2014 taxable year.

The Taxpayer also maintained significant connections with Virginia. The Taxpayer continued to receive tax reporting documents at a Virginia address. She also filed a full-year resident Virginia income tax return 2013, which was when she had already begun living and working in D.C. In addition, the Taxpayer maintained a Virginia driver’s license and voter’s registration. Further, she co-owned a vehicle that continued to be registered in Virginia. However, she co-owned the vehicle with a family member who was a Virginia resident.

Virginia Code § 46.2-323.1 states, “No driver’s license ... shall be issued to any person who is not a Virginia resident.” In fact, this section states that every person applying for a driver’s license must execute and furnish to the Commissioner of the Department of Motor Vehicles (DMV) a statement that certifies that the applicant is a Virginia resident. The Department has found that an individual may successfully establish a domicile outside Virginia even if he retains a Virginia driver’s license. See Public Document (P.D.) 00-151 (8/18/2000). However, obtaining or renewing a Virginia driver’s license is considered to be a strong indicator of intent to retain domiciliary residency in Virginia. See P.D. 02-149 (12/9/2002).

The fact that the Taxpayer has retained and renewed her driver’s license raises questions as to her intent to reside without Virginia permanently. In P.D. 10-249 (11/04/2010), a taxpayer asserted that many residents of another state maintain driver’s licenses and automobile registrations in other states because of high costs for automobile insurance. While it is unclear why the Taxpayer has failed to cancel her license in Virginia and obtain a D.C. driver’s license, the Department considers such continued connections to Virginia for the purpose of gaining benefits from Virginia’s economic environment, which is encouraged and protected by Virginia’s laws and regulations, to be strong intent of a taxpayer’s desire to be a domiciliary resident of Virginia.

The Department acknowledges that a change of domicile occurs as part of a process in which no single factor is dispositive. After carefully considering all of the evidence presented, I find that even if the Taxpayer performed sufficient actions to establish domicile in D.C., she failed to prove her intent to abandon her Virginia domicile because of the connections she retained. Therefore, a change of domicile did not occur, and the Taxpayer remained taxable as a domiciliary resident of Virginia.

Credit for Taxes Paid to 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. This same statute provides that the credit “shall not be granted to a resident individual when the laws of another state, under which the income in question is subject to tax assessment, provide a credit to such resident individual substantially similar to that granted by subsection B of this section.”

In this case, the Taxpayer was an actual resident of D.C. because she maintained a place of abode there for an aggregate of 183 days or more during the 2014 taxable year. Similar to Virginia, D.C. defines a resident to include an individual who maintains a place of abode within its jurisdiction for an aggregate of 183 days or more during a taxable year. See D.C. Code § 47-1801.04 (42). Virginia deems such individuals to be actual residents. See Virginia Code § 58.1-302.

As a domiciliary resident of Virginia and an actual resident of D.C., the Taxpayer was required to file a resident return in each jurisdiction. See Virginia Code § 58.1-341 A 1 and D.C. Code § 47-1805.02 (1). Under such circumstances, Virginia Code § 58.1-332 does not prohibit taxpayers from claiming a credit for income tax paid to D.C. on their Virginia return. The credit, however, is subject to certain limitations described in Virginia Code § 58.1-332, including that the income upon which the credit may be claimed must be “derived from sources outside the Commonwealth” and otherwise subject to Virginia income tax.

Based on the information provided, questions have arisen regarding the extent the Taxpayer may have had Virginia source income in 2014. If the Taxpayer was performing services at an office located in Virginia in 2014, as a response indicated on a questionnaire the Department sent to the Taxpayer while the appeal was pending, then income from performing such services would have been Virginia source income that the Taxpayer would have been unable to claim the credit against.

CONCLUSION

Because of the connections the Taxpayer retained with Virginia, I find that the Taxpayer has failed to prove she abandoned her Virginia domicile. Therefore, even if she took sufficient actions to establish domicile in D.C., a change of domicile did not occur and she remained taxable as a domiciliary resident of Virginia.

The Department’s assessment was issued based on information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer may have additional information that may more accurately reflect her Virginia taxable income. Accordingly, the Taxpayer should file a Virginia resident income tax return for the 2014 taxable year. As explained above, the Taxpayer would only be entitled to a credit for income tax paid to D.C. to the extent her income was from D.C. sources. The return should be submitted within 30 days of the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *. A schedule should be attached to the return indicating how much income was not from Virginia sources. Only that amount of income would be considered qualifying taxable income for purposes of computing the out-of-state credit. Once the return is received, it will be processed and the assessment adjusted accordingly. If the return is not filed within the allotted time, the Department’s assessment will be considered to be correct as issued and collection actions will resume.

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/1750.A

Related Documents

00-151

02-149

10-249