What does Virginia Ruling of the Tax Commissioner P.D. 20-180 conclude about Residency : Domicile - Change Requires Both Abandoning One Domicile and Obtaining A New One.?

Plain-English summary

The Virginia Tax Commissioner ruled in favor of a taxpayer who had been assessed Virginia individual income tax as a resident for 2016 and 2017, even though the Department's own records showed he had bought a house in Virginia, obtained a Virginia driver's license, and registered vehicles there during that period. The Department had assessed him after the IRS flagged that he might owe Virginia tax and he had not filed a Virginia return for those years.

The ruling turns on Virginia's two-part legal test for changing domicile: a person must (1) actually abandon the old domicile with no intent to return, and (2) acquire a new domicile through both physical presence and intent to remain permanently or indefinitely. Both elements must be satisfied together -- intent alone or physical presence alone is not enough, citing the Virginia Supreme Court's decision in Coopers Adm'r v. Commonwealth (1917).

Applying that test, the Commissioner found the taxpayer had accumulated some Virginia connections (the home purchase, driver's license, and vehicle registrations) that pointed toward an intent to eventually become a Virginia domiciliary. But he was still living in and working full-time in his original home state ("State A") during the years at issue, had been a registered voter there since 1981, and continued to file resident State A income tax returns. Because he had not yet abandoned his State A domicile and had not yet established the necessary physical presence in Virginia with intent to remain there permanently or indefinitely, the domicile change to Virginia was not yet complete for 2016 and 2017. The assessments were abated.

Notably, the ruling also flags that a Virginia driver's license and vehicle registrations are a strong (though not automatically conclusive) indicator of intent to be a Virginia domiciliary resident, and it warns the taxpayer that continuing to hold onto those Virginia connections will likely draw future scrutiny in later tax years, and that Virginia law bars nonresidents from holding a Virginia driver's license.

What this means for you

Individuals who have moved (or are moving) between states

If you're transitioning your domicile to or from Virginia, you need to satisfy both halves of the test in the same period: actually stop living in the old state with no plan to return, and be physically present in the new state with intent to stay indefinitely. Accumulating outward trappings of residency in the new state (buying a home, getting a driver's license, registering a car) before you've actually relocated your life there will not, by itself, complete the change -- and it can create ambiguity that invites a Department inquiry.

Business owners and remote/relocating employees

A Virginia domiciliary resident who works elsewhere in the country (or abroad) but hasn't abandoned Virginia domicile remains subject to Virginia tax. Conversely, someone who hasn't yet abandoned another state's domicile isn't a Virginia domiciliary resident even if they've begun accumulating Virginia ties. Also remember the separate "actual resident" test: anyone (regardless of domicile) who maintains a Virginia abode for more than 183 days in a year is taxable in Virginia on that basis alone.

Accountants and tax professionals

The burden of proving a completed change of domicile rests with the taxpayer. The Commissioner weighs the full facts and circumstances -- financial independence, employment, income sources, spouse's residence, marital status, situs of real/tangible property, voter registration, and vehicle/driver's license registration -- rather than a taxpayer's bare declaration of intent. A Virginia driver's license or vehicle registration is not fatal to establishing domicile elsewhere (see P.D. 00-151), but the Department treats obtaining or renewing one as a strong indicator of intent to retain Virginia domicile (see P.D. 02-149), especially where it looks like the taxpayer is using it to obtain Virginia-resident benefits like insurance rates.

Common questions

Q: Does getting a Virginia driver's license or registering a car in Virginia automatically make someone a Virginia domiciliary resident?
A: No, not automatically -- the ruling notes a taxpayer can still establish domicile elsewhere even while holding a Virginia license (citing P.D. 00-151). But the Commissioner treats a Virginia driver's license and vehicle registration as a strong indicator of intent to retain or acquire Virginia domicile, particularly if it looks like the taxpayer is doing so to obtain resident benefits.

Q: What two things does Virginia require to complete a change of domicile?
A: (1) Actual abandonment of the old domicile with no intent to return, and (2) acquisition of a new domicile through both physical presence there and intent to remain permanently or indefinitely. Both must occur; neither intent alone nor physical presence alone is sufficient, per the Virginia Supreme Court in Coopers Adm'r v. Commonwealth (1917).

Q: Was this taxpayer found to be a Virginia resident?
A: No. The Commissioner found he had not completed his domicile change to Virginia for the 2016 and 2017 tax years -- he was still living and working mostly in his prior home state and had not abandoned that domicile -- so the Virginia resident assessments were abated.

Q: Could this taxpayer be assessed as a Virginia resident in a later year?
A: The Commissioner explicitly warned that continuing Virginia connections (vehicle registrations, a retained Virginia driver's license, or other indicators of a permanent Virginia residence) will likely prompt future Department contact, and that a change in facts and circumstances could change the outcome for later taxable years.

Citations and references

Statutes, regulations, and cases:

• Va. Code § 58.1-302 (domiciliary resident vs. actual resident definitions)
• Va. Code § 58.1-1821 (application for correction of assessment)
• Va. Code § 46.2-323.1 (driver's license requires Virginia residency certification)
• Va. Code § 46.2-348 (penalty for false statement to DMV)
• Coopers Adm'r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917)
• P.D. 00-151 (8/18/2000)
• P.D. 02-149 (12/9/2002)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-180

Original ruling text

October 13, 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 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 a Virginia individual income tax return for the 2016 and 2017 taxable years. 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 his response, the Department issued assessments. The Taxpayer appeals, contending he was a resident of * (State A).

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 maintained connections with State A during the taxable years at issue. He owned and resided in State A residences from 1991 through February 2014 at which time he began residing with a family member. The Taxpayer was employed full-time at a business located in State A. He has been a registered voter in State A since 1981. The Taxpayer filed resident State A income tax returns for the 2016 and 2017 taxable years.

The Department’s records indicate that the Taxpayer purchased a residence in Virginia in September 2014, which was sold in September 2019. He obtained a Virginia driver’s license in October 2014 and registered one vehicle in Virginia in 2014 and two more vehicles in 2018.

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 Taxpayer explains that the residence purchased in Virginia in 2014 was a second home intended for future retirement at which he only spent a minimal number of days in 2016 and 2017. The Taxpayer states that he registered the vehicles in Virginia for insurance purposes. 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 and car registration) 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.

While he may have intended to establish domicile in Virginia sometime during the 2016 and 2017 taxable years, acquiring domicile in a new location requires both intent and physical presence. The Virginia Supreme Court has observed that neither physical presence alone, nor expressed intent alone, are sufficient to create a legal domicile for taxation purposes. See Coopers Adm'r v Commonwealth , 121 Va. 338, 93 S.E. 680 (1917).

Although the Taxpayer already established some connections with Virginia that would indicate the intent to establish domiciliary residency, it appears that he did not yet establish his physical presence in Virginia with the necessary intent to remain permanently or indefinitely during the 2016 and 2017 taxable years. In addition, because he was still living and working most of the time in State A, he had not yet abandoned his State A domicile. Therefore, the Taxpayer did not complete the process of changing his domicile to Virginia. Accordingly, after carefully considering the information provided, I find that that the Taxpayer was not taxable as a Virginia resident for the 2016 and 2017 taxable years. Accordingly, the assessments will be abated.

While the Department concedes that the Taxpayer was not a domiciliary resident of Virginia during the 2016 and 2017 taxable years, he should be aware that continuing connections with Virginia, such as registering vehicles in Virginia, retaining a Virginia driver’s license or other indicators of a permanent residence in Virginia will likely result in future contacts by the Department with respect to the situs of the Taxpayer's domicile. As in any determination, a change in the facts and circumstances could result in a change in the Department's determination in subsequent taxable years. In addition, the Taxpayer should be aware that Virginia law does not permit nonresidents to obtain Virginia driver’s licenses, and persons providing a false statement to an agency of the Commonwealth may be subject to penalty under Virginia law. Any applicant who knowingly makes a false statement to DMV is subject to penalties under Virginia Code § 46.2-348.

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/3379.B

Related Documents

00-151

02-149