Did keeping a Virginia driver's license and two registered vehicles make this taxpayer a taxable Virginia domiciliary resident for 2016 and 2017, despite living out of state?

Plain-English summary

The IRS tipped off the Virginia Department of Taxation that this taxpayer might owe Virginia income tax for 2016 and 2017. When the Department checked its records, he had not filed Virginia returns for either year. After requesting and reviewing his documentation, the Department assessed him anyway, and he appealed on two grounds: first, that the Department had already looked at a prior year (2015) and let him off the hook, and second, that he was really a resident of another state (referred to as State A) during 2016 and 2017, not Virginia.

The prior-year argument failed on timing. The taxpayer had been audited for failing to file a 2015 Virginia return, and on February 15, 2019 the Department's auditor sent him a letter agreeing that, based on what he submitted, he did not need to file for 2015. He argued this should protect him for 2016 and 2017 too, invoking the rule in Va. Code § 58.1-1835 that the Department must abate tax attributable to erroneous written advice the taxpayer reasonably relied on. But his 2016 return was due May 1, 2017 (or October 31, 2017 with an extension), and his 2017 return was due May 1, 2018 (or October 31, 2018 with an extension) -- all before the February 2019 letter even existed. He could not have relied on advice that hadn't been given yet, so the written-advice defense did not apply to either year.

The domicile argument was more successful. The taxpayer had lived in another state (State B) through 2014. During 2016 and 2017 he traveled extensively for business and stayed rent-free at a friend's house in State A for more than half of each year; he never leased or owned a home in Virginia. Working against him, he had registered two vehicles in Virginia back in 2014 (which he said was just for convenience, to avoid re-registering them in State A) and, in June 2016, he obtained a Virginia driver's license after his State B license expired -- something Virginia law (Va. Code § 46.2-323.1) only allows for actual Virginia residents, and something the Department treats as a strong signal of intent to stay domiciled in Virginia.

Despite those Virginia-facing contacts, the Department concluded the taxpayer never actually became a Virginia domiciliary resident during 2016 or 2017. Changing domicile requires both abandoning the old one and physically moving to and residing in the new one with intent to stay indefinitely -- intent alone or presence alone is not enough. The taxpayer did not begin actually living in Virginia until 2018. Because he had not yet established physical presence in Virginia with intent to remain there during the years at issue, the Department found he was not taxable as a Virginia domiciliary resident for 2016 and 2017, and abated the assessments.

What this means for you

A prior "no assessment" letter does not carry forward automatically

Being cleared for one tax year does not lock in that result for later years -- residency is determined fresh, year by year, based on that year's specific facts. And if you want to rely on the Department's written advice as a shield under Va. Code § 58.1-1835, the advice has to predate the filing deadline it's supposed to excuse; advice issued after your return was already due cannot retroactively justify not filing.

Vehicle registrations and a driver's license are evidence, not proof

Registering vehicles in Virginia or getting a Virginia driver's license -- especially renewing or newly obtaining one, which by law requires certifying Virginia residency -- weighs toward Virginia domicile and can hurt you in a residency dispute. But the Department has recognized that these facts alone don't automatically make someone a Virginia domiciliary resident if the person hasn't actually lived in Virginia with intent to stay. Domicile still requires genuine physical presence plus intent, not just paperwork contacts.

Changing domicile requires actually moving, not just planning to

If you're trying to establish that you left Virginia (or any state) for tax purposes, you need to show both that you abandoned the old domicile with no intent to return and that you physically moved to and began residing in the new place with intent to stay indefinitely. Staying rent-free at a friend's house while traveling for work, without ever leasing or owning a residence in the new location, can undercut a claim that you'd truly established domicile there -- though in this case that fact did not stop the taxpayer from also avoiding Virginia domiciliary status, because he had likewise not yet moved back to Virginia.

Common questions

Q: If Virginia previously found I didn't owe tax for one year, am I automatically clear for the next year too?
A: No. Residency and domicile are determined separately for each taxable year based on that year's facts. A slight change in circumstances can change the outcome from one year to the next.

Q: Can I rely on a Department letter that came after my return was already due?
A: No. Under Va. Code § 58.1-1835, abatement based on erroneous written advice requires that you reasonably relied on that advice when it was given -- advice issued after your filing deadline had already passed cannot have been relied on for that deadline.

Q: Does getting a Virginia driver's license automatically make me a Virginia resident for tax purposes?
A: Not automatically, but it counts as strong evidence of intent to remain domiciled in Virginia, especially because Virginia law only issues driver's licenses to people who certify Virginia residency. The Department has allowed taxpayers to prove they'd established domicile elsewhere even while holding a Virginia license, but it's a factor working against you.

Q: What ultimately mattered most in this case?
A: Physical presence combined with intent. The taxpayer had Virginia-facing contacts (vehicles, a driver's license) but had not actually lived in Virginia since before 2014 and did not move back until 2018. Because he lacked the physical-presence element in Virginia during 2016-2017, he could not be a Virginia domiciliary resident for those years, regardless of the paperwork contacts.

Citations and references

• Va. Code § 58.1-1821 -- application for correction of erroneous individual income tax assessment
• Va. Code § 58.1-1835 -- required abatement of tax, interest, and penalty attributable to erroneous written Department advice, subject to reliance, accuracy, and unchanged-facts conditions
• Va. Code § 58.1-302 -- defines domiciliary resident and actual resident (183-day rule) for Virginia individual income tax
• Va. Code § 46.2-323.1 -- driver's licenses may be issued only to Virginia residents, who must certify residency on application
• P.D. 13-229 (12/18/2013) -- cited on the standard for reliance on Department written advice
• P.D. 00-151 (8/18/2000) -- cited for the proposition that a taxpayer can establish domicile outside Virginia despite retaining a Virginia driver's license
• P.D. 02-149 (12/9/2002) -- cited for treating a Virginia driver's license renewal/acquisition as a strong indicator of intent to retain Virginia domicile
• P.D. 13-97 (6/11/2013) and P.D. 15-4 (1/8/2015) -- cited for the principle that Virginia-facing connections alone don't establish domicile without actual residence with intent to remain
• Coopers Adm'r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917) -- Virginia Supreme Court holding that neither physical presence alone nor expressed intent alone creates a legal domicile for taxation

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-148

Original ruling text

August 25, 2020

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 assessments issued to * (the “Taxpayer”) for the taxable years ended December 31, 2016 and 2017.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia individual income tax returns for the 2016 and 2017 taxable years. A review of the Department's records showed that the Taxpayer had not filed the returns. The Department requested additional information from the Taxpayer to determine if his income was subject to Virginia individual income tax. Upon receipt and review of the Taxpayer’s documentation, the Department issued an assessment. The Taxpayer appeals, contending he was a resident of * (State A) and an audit of the previous taxable year resulted in no assessment.

DETERMINATION

Prior Audits

The Taxpayer argues that he was audited for a previous year and no assessment was issued. He was selected for review in 2019 for failing to file a 2015 Virginia income tax return. The determination as to whether an individual is a resident for Virginia income tax purposes is factual. The fact that a taxpayer is found not to be a Virginia resident in a prior year does not automatically mean that he cannot establish residency in a subsequent year. A slight change in the facts could be the difference as to whether an individual is or is not a Virginia resident.

Based on a review of the Taxpayer’s documentation, the Department’s auditor abated the assessment and informed the Taxpayer by letter dated February 15, 2019 that, based on the information he submitted, he was not required to file a Virginia return for the 2015 taxable year.

Virginia Code § 58.1-1835 provides that the Department must abate any portion of tax, interest and penalty attributable to erroneous written advice by the Department under the following conditions:

The written advice was reasonably relied upon by the taxpayer and was in response to a specific written request by the taxpayer;

The portion of the penalty or tax did not result from a failure by the taxpayer to provide adequate or accurate information; and

The facts of the case described in the written advice and the request thereof are the same, and the taxpayer's business or personal operations have not changed since the advice was rendered.

Based on the above statutory provisions, the erroneous advice must be reasonably relied upon by a taxpayer, and such advice must be in writing. In addition, such written advice must be provided based on a specific request by a taxpayer who has provided sufficient and accurate facts so that the Department may issue a correct decision. See Public Document (P.D.) 13-229 (12/18/2013).

In this case, a 2016 Virginia individual income tax return would have been due either on May 1, 2017, or the extended due date of October 31, 2017. A 2017 Virginia individual income tax return would have been due either on May 1, 2018 or the extended due date of October 31, 2018. The letter abating the 2015 assessment was mailed on February 15, 2019. As such, the Taxpayer could not have relied on the Department’s written response as required by Virginia Code § 58.1-1835 when deciding not to file a Virginia individual income tax return for the 2016 or 2017 taxable years.

Domicile

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 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 resided in * (State B) through 2014. He traveled extensively for business and stayed rent free at a friend’s house in State A for more than half the year in both 2016 and 2017. He did not lease or own a residence in Virginia.

The Taxpayer, however, established some connections with Virginia. In 2014, the Taxpayer registered two vehicles in Virginia. The Taxpayer states that he kept the vehicles in Virginia as a matter of convenience and also to avoid transporting them to State A in order to register them. Further, in June 2016, the Taxpayer acquired a Virginia driver’s license when his State B driver’s license expired.

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 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).

Having connections such as personal residences, driver’s licenses, motor vehicle registrations and voter’s registrations indicates that an individual had the intent to establish domicile in the state or country where such connections were established. Acquiring domicile, however, in a new location requires both intent and personal presence. See Coopers Adm’r v. Commonwealth , 121 Va. 338, 93 S.E 680 (1917), in which the Virginia Supreme Court observed that neither physical presence alone, nor expressed intention alone are sufficient to create a legal domicile for taxation purposes. The Department has determined that individuals cannot establish a domicile despite having some or all of the above connections if they have not yet resided in the jurisdiction with the intention to remain permanently or indefinitely. See, e.g ., P.D. 13-97 (6/11/2013) and P.D. 15-4 (1/8/2015).

It appears in this case that the Taxpayer was a domiciliary resident of State B through at least 2014. The Taxpayer contends that he was a State A resident during the 2016 and 2017 taxable years. He did not establish a permanent place of abode in State A because he merely stayed at a friend’s residence when he was not traveling for business. To have become a domiciliary resident of Virginia, however, he would need to have established a physical presence in Virginia with the intention to remain permanently or indefinitely in Virginia at that time. Although the Taxpayer registered vehicles in Virginia and acquired a Virginia license, he did not begin residing in the Commonwealth until 2018. Thus, it appears that the Taxpayer had not established physical presence in Virginia during the 2016 and 2017 taxable years with the intention to remain in Virginia permanently or indefinitely.

CONCLUSION

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 the Taxpayer did not reside in Virginia permanently or indefinitely for the 2016 and 2017 taxable years and, therefore, was not taxable as a domiciliary resident of Virginia. The assessments at issue will be abated.

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/3388.B

Related Documents

00-151

02-149

13-97

13-229

15-4