If I move abroad and Virginia later says I was still a full-year resident, how do I show I changed my domicile and become a part-year filer instead?

Plain-English summary

A naturalized U.S. citizen filed a 2015 Virginia resident income tax return but subtracted the income he earned while living in a foreign country ("Country A"). On audit, the Department of Taxation decided he had actually been a full-year Virginia resident and assessed additional tax on the subtracted income. He appealed, arguing he had abandoned his Virginia domicile and moved to Country A, so he should only have been taxed as a Virginia resident through September 2015.

The Tax Commissioner sided with the Taxpayer in part. Virginia domicile law requires both (1) actually abandoning the old domicile with no intent to return, and (2) establishing a new domicile through physical presence plus intent to stay indefinitely -- and the taxpayer bears the burden of proving the change. Here, the Taxpayer had mixed evidence: he moved back to Country A after retiring, got a residence, a driver's license, and a government ID there, and stayed there continuously after September 2015. But he had also renewed his Virginia driver's license in September 2015 (which requires certifying Virginia residency), had a sibling in Virginia forwarding his mail, and told the Department's auditor at one point that he intended to return to Virginia.

Weighing all of that, the Commissioner concluded the Taxpayer did abandon his Virginia domicile -- but only once he began living permanently or indefinitely in Country A in September 2015, not earlier. That makes him a part-year Virginia resident for 2015, taxable on his Virginia-source income only through that point. However, because he had used a "subtraction" for the foreign income on a full-year resident return rather than filing as a part-year resident, the Commissioner did not simply cancel the assessment: the Taxpayer was ordered to file an actual Virginia part-year resident return within 60 days, after which the assessment would be adjusted accordingly. If he didn't file, the original full-year assessment would stand and collection could resume.

What this means for you

Individuals moving abroad or to another state mid-year

Simply subtracting foreign or out-of-state income on an otherwise full-year Virginia resident return is not the correct way to handle a mid-year domicile change. Virginia law (§ 58.1-303) requires filing as a part-year resident, with income, deductions, and exemptions prorated to the period of actual Virginia residency. If you change domicile mid-year, expect to file (or amend to) a part-year return rather than claim a subtraction.

Anyone trying to prove they abandoned Virginia domicile

The ruling shows the Department weighs many factors together: where you live and work, your driver's license and vehicle registration, voter registration, financial ties, family connections, and your own statements of intent. No single fact is decisive, but the ruling calls a renewed or newly obtained Virginia driver's license "a strong indicator of intent to retain domiciliary residency in Virginia," since Virginia law requires applicants to certify they are Virginia residents. Statements to an auditor about eventually returning to the U.S. (without clearly returning to Virginia specifically) can also work against you. Keep records of your foreign residence, ID, and driver's license, and be careful about renewing Virginia credentials or having Virginia mail forwarded after you claim to have left.

Accountants and tax professionals

The taxpayer, not the Department, bears the burden of proving a domicile change (§ 58.1-205), and "a simple declaration is not sufficient." When advising a client who has moved abroad or out of state, document the date the client actually became physically present in the new location with intent to stay indefinitely -- that date, not an earlier intended departure, is what the Department will treat as the domicile-change date. Also make sure the client files a proper part-year return under § 58.1-303 and 23 VAC 10-110-40 B rather than taking a subtraction on a full-year return, since that procedural mismatch was part of why this assessment needed correcting.

Common questions

Q: Did the taxpayer win this appeal?
A: Partly. The Commissioner agreed he was not a Virginia resident for the whole year -- he became a part-year resident once he began living permanently or indefinitely in Country A in September 2015. But the Commissioner rejected the taxpayer's approach of subtracting the foreign income from a full-year return, and required him to file a proper part-year resident return instead.

Q: Does keeping a Virginia driver's license mean you're still a Virginia domiciliary?
A: Not automatically -- the ruling notes the Department has found people can establish domicile elsewhere even while retaining a Virginia license. But renewing or obtaining a Virginia driver's license is treated as "a strong indicator of intent to retain domiciliary residency in Virginia," partly because Virginia law only allows residents to hold one.

Q: When exactly did the taxpayer stop being a Virginia domiciliary resident, according to this ruling?
A: September 2015 -- when he began living permanently or indefinitely in Country A -- not an earlier date, despite having returned to Country A and taken steps like obtaining a residence and government ID there earlier in the process.

Q: What did the taxpayer have to do after this ruling?
A: File a 2015 Virginia part-year resident return within 60 days of the letter. Once filed, the Department would process it and adjust the assessment accordingly; if not filed, the original full-year assessment would be considered correct and collection could resume.

Citations and references

• § 58.1-1821, Code of Virginia (application for correction of erroneous assessment)
• § 58.1-302, Code of Virginia (definitions of domiciliary resident and actual resident)
• § 58.1-205, Code of Virginia (burden of proof on the taxpayer)
• § 58.1-301, Code of Virginia (conformity to federal Internal Revenue Code)
• §§ 58.1-322.01 through 58.1-322.04, Code of Virginia (Virginia income modifications)
• § 58.1-303, Code of Virginia (part-year residents)
• § 46.2-323.1, Code of Virginia (Virginia driver's license residency certification requirement)
• § 46.2-307, Code of Virginia (nonresidents may use home state/country license)
• § 46.2-100, Code of Virginia (definition of nonresident under Title 46.2)
• 23 VAC 10-110-40 B (income attributable to Virginia for part-year residents)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-158

Original ruling text

September 8, 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 assessment issued to * (the “Taxpayer”) for the taxable year ended December 31, 2015.

FACTS

The Taxpayer, a naturalized citizen of the United States, filed a Virginia resident individual income tax return for the 2015 taxable year, claiming a subtraction for a portion of his income earned while residing in * (Country A). Under audit, the Department requested additional information to determine if all of his income was taxable in Virginia. Based on the information received, the Department determined that the Taxpayer was a resident for the entire 2015 taxable year and issued an assessment. The Taxpayer appeals, claiming he abandoned his Virginia domicile and relocated to Country A, and he should be considered a Virginia resident only through September 2015.

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 she intends to return even though she 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 her 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 her 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, voter’s registration 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. See Virginia Code § 58.1-205. 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 took actions consistent with establishing domicile in Country A. He returned to his country of origin upon retiring from his employment in the United States. He obtained a residence, driver’s license, and government identification card in Country A. The Taxpayer has continued to reside in Country A since the end of September 2015.

The Taxpayer also took actions consistent with maintaining a Virginia domicile. He obtained a Virginia driver’s license in February 2013, which was renewed in September 2015. 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 an individual has a Virginia driver’s license is one factor to consider, among other possible factors, in any given domicile case. Nonresidents are not permitted to hold Virginia driver’s licenses. See Virginia Code § 46.2-323.1. They are, however, permitted to continue to use their licenses from their home states or countries. See Virginia Code § 46.2-307. For purposes of Title 46.2 of the Code of Virginia , “nonresident” is generally defined as every person who is not domiciled in the Commonwealth. See Virginia Code § 46.2-100. Thus, in general, an individual must be a domiciliary resident of Virginia in order to hold a Virginia driver’s license. The Department considers a taxpayer’s continued connections to Virginia for the purposes of taking advantage of favorable Virginia laws in order to gain the benefits ( i.e ., driver’s license) available to Virginia residents to be strong intent of a taxpayer’s desire to be a domiciliary resident of Virginia. See P.D. 02-149.

The Taxpayer’s sibling resided in Virginia during the taxable year at issue. Federal information returns were sent to a Virginia post office box and were then forwarded by the sibling to the Taxpayer’s Country A address. The Taxpayer’s sibling moved to * (State A) in 2017. The Taxpayer’s information returns were then sent to a post office box in State A and subsequently forwarded to Country A.

The Department’s auditor indicates that the Taxpayer stated in correspondence that he was residing temporarily in Country A and intended to return to Virginia as a permanent resident. The Taxpayer states in his correspondence that he either intended to return to and reside in the United States or to State A at some indefinite time in the future after attending to responsibilities in Country A. He did not specifically state that he would return to Virginia.

Part-Year Residents

Virginia’s conformity to federal income tax law is set forth in Virginia Code § 58.1-301, which provides that the terms used in the Virginia income tax statutes will have the same meaning as used in the Internal Revenue Code (IRC). Further, conformity does not extend to terms, concepts, or principles specifically provided for in Title 58.1 of the Code of Virginia . For individual income tax purposes, Virginia conforms to federal law in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Virginia Code §§ 58.1-322.01 through 58.1-322.04. There is no exemption for income earned while residing in a foreign country.

Virginia Code § 58.1-303 provides that a taxpayer who becomes a resident of another state or country during the taxable year is subject to taxation for the period in which they were a Virginia resident. Accordingly, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. In addition, part-year residents may claim a portion of their Virginia personal exemptions, but the exemptions will be prorated based upon the number of days that the taxpayer was a Virginia resident. Further, part-year residents may claim a prorated Virginia standard deduction if they claim the standard deduction for federal income tax purposes.

Pursuant to Virginia Code § 58.1-303, part-year residents are subject to tax only on their income that is attributable to Virginia. Title 23 of the Virginia Administrative Code (VAC) 10-110-40 B specifically defines income attributable to Virginia as “that which is received during the portion of the year in which the individual is a Virginia resident.” Taxpayers that are part-year Virginia residents are required to file Virginia part-year income tax returns if they have taxable income earned while they resided in the Commonwealth.

CONCLUSION

While the Taxpayer has retained some connections with Virginia and has expressed an intent to move back to the United States, he has remained in Country A since leaving Virginia without establishing a definitive return date. After carefully considering all of the evidence presented, I find that the Taxpayer remained a domiciliary resident of Virginia until he left Virginia and began living permanently or indefinitely in Country A in September 2015.

Because the Taxpayer changed his domiciliary residence to Country A in September 2015, he would be considered a part-year resident under Virginia law until that time. Because the Taxpayer cannot claim a subtraction for income he earned while in Country A, the Taxpayer must file a 2015 Virginia part-year resident return with the Department within 60 days from the date of this letter. Please send the return to the Virginia Department of Taxation, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia, 232261-7203, Attn: *. Once the part-year return has been filed, it will be processed and the assessment will be adjusted accordingly. If the return is not filed, the assessment will be considered to be correct and collection action may resume.

The Code of Virginia sections, regulation 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 Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3312.B

Related Documents

00-151

02-149