If I work and file resident returns in another state but keep a Virginia driver's license and property, am I still taxed as a Virginia resident?

Plain-English summary

The IRS tipped off Virginia that a taxpayer might owe Virginia income tax returns for 2017-2019. Department records showed he'd never filed for those years, so the Department asked him for information, concluded he was a Virginia domiciliary resident, and assessed tax. The taxpayer appealed, saying he was actually living in Maryland the whole time.

Virginia recognizes two kinds of residents: a domiciliary resident (your permanent home, the place you intend to return to) and an actual resident (anyone who keeps a place of abode in Virginia for more than 183 days in a year, regardless of domicile). Changing your domicile away from Virginia takes two things happening together: actually abandoning Virginia with no intent to return, and establishing a new permanent home somewhere else. The person claiming the change has the burden of proving it.

The taxpayer said he'd lived in a Maryland home since 1996, paid Maryland tax, and filed Maryland resident returns -- but property records didn't list him as an owner of that home, and he'd actually filed Virginia resident returns for most years from 2000 to 2012, undercutting his own story. Meanwhile, he kept strong Virginia ties the whole time: he'd owned a Virginia home since 2006, and — critically — he held and repeatedly renewed a Virginia driver's license, most recently in March 2018, right in the middle of the years he claimed to be a Maryland-only resident. Virginia law requires drivers to certify Virginia residency to get or renew that license, so the Department treats a renewed Virginia license as strong evidence you still intend to remain a Virginia domiciliary. Weighing all of this, the Department found he'd never actually abandoned his Virginia domicile, so he stayed taxable as a Virginia resident for all three years.

Two additional wrinkles mattered. First, Virginia has a reciprocity agreement with Maryland that normally exempts nonresidents working in Virginia from Virginia tax on their wages -- but that agreement explicitly does not apply to a "dual resident" (domiciled in one state but actually residing 183+ days in the other), which is exactly what this taxpayer was found to be. Second, even though he lost the residency argument, the Department flagged that he could still claim Virginia's credit for income tax he actually paid to Maryland (though not for any Maryland local tax, which isn't creditable) -- and gave him 60 days to file the actual Virginia returns so his real tax liability, including that credit, could be calculated.

What this means for you

People who relocate but keep some Virginia ties

Spending more than half the year in another state doesn't, by itself, end your Virginia domicile. You must also affirmatively abandon Virginia with no intent to return. Renewing a Virginia driver's license, keeping Virginia real estate, or registering vehicles in Virginia are all treated as evidence cutting against a claimed move -- a renewed license in particular is called out as "strong evidence" of continuing Virginia domiciliary intent, even after you claim to have left.

Anyone claiming Maryland (or another reciprocity-state) residency while working there

Virginia's reciprocity agreements (currently with Maryland, West Virginia, and Pennsylvania) only exempt true nonresidents from Virginia tax on wages earned in those states. If you're found to be a Virginia domiciliary who also happens to spend 183+ days in the reciprocity state (a "dual resident"), reciprocity does not apply to you, and you may owe Virginia tax on top of that state's tax -- though you can typically claim a credit for the state (not local) income tax you actually paid there.

Accountants and tax professionals

This ruling is a useful checklist of the "hard" domicile-change evidence the Department weighs most heavily: driver's license renewals, real property ownership, vehicle registration, and the taxpayer's own prior filing history (filing VA resident returns for years undercuts a later domicile-change claim). If a client loses on residency but genuinely paid another state's income tax, remember to still claim the § 58.1-332 credit -- state tax paid is creditable, local tax is not.

Common questions

Q: If I live in another state for more than 183 days, doesn't that make me a nonresident of Virginia?
A: Not by itself. Spending 183+ days elsewhere can make you an "actual resident" of that other state, but it doesn't end your Virginia domicile unless you also actually abandon Virginia with no intent to return and establish a new permanent home elsewhere. You can be domiciled in Virginia and still owe Virginia tax even while primarily living in another state.

Q: Does keeping a Virginia driver's license hurt my claim that I moved away?
A: It's not automatically fatal -- the Department has found people who kept a VA license had still successfully established domicile elsewhere. But renewing that license while claiming to be a nonresident is treated as strong evidence you still intend to remain a Virginia domiciliary resident.

Q: Does the Virginia-Maryland reciprocity agreement protect me from double taxation?
A: Only if you're a true nonresident of Virginia working there. It explicitly doesn't apply to someone who is domiciled in one state (say, Virginia) but actually resides 183+ days in the other (Maryland) -- a "dual resident" gets no reciprocity exemption.

Q: If I lose the residency argument, do I still get credit for tax I paid to the other state?
A: Yes, for state income tax actually paid, limited to the lesser of what you paid there or what Virginia would tax on that same income. Any local tax paid to the other state (as opposed to that state's own income tax) is not creditable.

Q: Does this ruling apply to my situation?
A: Not automatically -- domicile determinations are fact-intensive and based on "all the facts and circumstances" of each case; the Department reached this conclusion based on this specific taxpayer's inconsistent filing history and retained Virginia ties.

Citations and references

• Va. Code § 58.1-302 (domiciliary resident and actual resident definitions)
• Va. Code § 46.2-323.1; § 46.2-100; § 46.2-307; § 46.2-300 et seq. (Virginia driver's license residency requirements)
• Va. Code § 58.1-342 B (reciprocal income tax agreement authority)
• Virginia Tax Bulletin (VTB) 06-8 (12/27/2006) (Virginia-Maryland reciprocity update)
• Va. Code § 58.1-332 A (credit for taxes paid to another state)
• Va. Code § 58.1-111 (best information available)
• P.D. 00-151 (8/18/2000); P.D. 02-149 (12/9/2002) (driver's license as domicile evidence)
• P.D. 97-301 (7/7/1997) (credit computation limitation)
• P.D. 21-121 (9/7/2021) (local tax not creditable)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-84

Original ruling text

July 13, 2023

Re: § 1821 Application: Individual Income Tax

Dear *:

This will respond 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, 2017, through 2019.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file Virginia income tax returns for the 2017 through 2019 taxable years. A review of the Department’s records showed that the Taxpayer had not filed returns. The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia. Based on his responses and the information otherwise available to the Department, the Department determined that the Taxpayer was taxable as a domiciliary resident of Virginia and issued assessments to the Taxpayer. The Taxpayer appeals, contending he was a resident of Maryland.

DETERMINATION

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 that person and the place to which that person intends to return even though they may be residing elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon their 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 their 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 their 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 person’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. The taxpayer has the burden of proving that their Virginia domicile has been abandoned. If the information is inadequate to meet this burden, the Department must conclude that the taxpayer intended to remain indefinitely in Virginia.

The Taxpayer explains that he lived and worked in Maryland during the taxable years at issue. Maryland income tax was withheld from his wages, and Maryland resident returns were filed for each of the taxable years at issue. During a telephone interview with an Appeals and Rulings staff member, the Taxpayer claimed that he has resided since 1996 in a residence in Maryland that he purchased with his girlfriend. According to property records, however, the Taxpayer is not listed as an owner of this residence. Further, his statement appears inconsistent with the fact that the Taxpayer filed Virginia resident income tax returns for the majority of taxable years from 2000 through 2012.

In any event, the Taxpayer retained significant connections to Virginia. The Taxpayer has owned a personal residence in Virginia since 2006. The Taxpayer explains that this residence was purchased so his grandmother would have a place to live. He has also held a Virginia driver’s license for a number of years. It is unclear when the Taxpayer first obtained the license, but he has renewed it at least twice during the period he claims to have only been a Maryland resident, the latest time being in March 2018. In addition, he owned several vehicles that were registered in Virginia during the taxable years at issue.

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 the 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.

Individuals who have resided in Virginia more than six months, however, are deemed to be residents for purposes of applying most of the provisions of Title 46.2 of the Code of Virginia , including the driver’s licensing provisions of Title 46.2, Chapter 3 ( Virginia Code § 46.2-300 et seq.). In addition, because an individual who has been physically present and residing in Virginia for more than six months may nevertheless remain a domiciliary resident of another state or country, it may be necessary in such cases to examine additional factors to determine whether a person who has obtained a driver’s license based on physical presence and actual residency in Virginia also intended to become a domiciliary resident of Virginia. However, once it is clear that an individual has established domiciliary residency in Virginia, subsequent renewals of a Virginia driver’s license even while absent from the state will be considered very strong evidence of the individual’s intent to remain a domiciliary resident of Virginia. That is because the basis of the individual’s claim to be entitled to a Virginia driver’s license would no longer be based on the length of time he was physically present in Virginia as an actual resident, but rather on the implication that he remained a domiciliary resident of Virginia.

The Department expects that when individuals are seeking a permanent change of domicile, they will normally register vehicles, obtain a new driver’s license, register to vote, and perform other official acts indicating their intent to change domicile. Retaining such connections with Virginia raises considerable doubt as to the individuals intent to abandon their Virginia domicile. If a permanent change of residence were intended, there would be no need to retain such connections with the former state. In this case, the Taxpayer obtained and maintained these sorts of permanent ties with Virginia and established none with Maryland.

The Taxpayer seems to believe that he should not be subject to income tax in Virginia simply because he lived and worked in Maryland for at least 183 days during each of the taxable years at issue. While this would have established him as a so-called “actual resident” of Maryland for income tax purposes, an individual can remain a domiciliary resident of one state white actually living and working in another. The Taxpayer’s filing status with Maryland has no bearing on his residency status with Virginia, which is a separate determination made under Virginia law.

As stated above, a change of domicile requires both establishing a new domicile and abandoning the old. These requirements must also be satisfied concurrently. Even if the Taxpayer had the requisite intent to establish domicile in Maryland, the connections he has retained with Virginia raises too substantial of a doubt as to whether he intended to abandon his Virginia domicile. In addition, apparent inconsistencies with the available information further complicate the Department’s ability to discern the Taxpayer’s true intent.

Reciprocity

Virginia Code § 58.1-342 B grants the Department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income tax when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. In addition, employers are not required to withhold Virginia income tax from residents of these states. Virginia currently has this type of agreement with Maryland, West Virginia, and Pennsylvania.

The reciprocal income tax agreement between Virginia and Maryland was most recently updated in 2006. See Virginia Tax Bulletin (VTB) 06-8 (12/27/2006). The updated agreement makes clear that reciprocity does not apply to a taxpayer who is a domiciliary resident of one state, but who maintains a place of abode and spends an aggregate of more than 183 days of the taxable year in the other state. In this case, it appears that the Taxpayer was an actual resident of Maryland and a domiciliary resident of Virginia. As a so-called “dual resident,” the reciprocal agreement did not apply.

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. 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 in the other state. See P.D. 97-301 (7/7/1997). 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.

The Taxpayer would be eligible for credit for income tax paid to Maryland because the reciprocal agreement did not apply. The Taxpayer should be aware, however, that the local tax paid on his Maryland resident income tax return is not eligible for the credit. See PD. 21-121 (9/7/2021).

CONCLUSION

After carefully reviewing all of the available evidence, I find that the Taxpayer has failed to carry his burden to prove he intended to change his domicile. Accordingly, he remained taxable as a domiciliary resident of Virginia for the 2017 through 2019 taxable years.

The assessments at issue were made 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, which may include a credit for tax paid to Maryland. Therefore, the Taxpayer should file 2017, 2018, and 2019 Virginia resident income tax returns to more accurately reflect his Virginia income tax liability. The returns should be submitted within 60 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: *. Upon receipt, the returns will be reviewed and the assessments will be adjusted, as appropriate. If the returns are not received within the allotted time, the assessments will be considered correct and collection action may 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 (804) ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4407.B

Related Documents

97-301

00-151

02-149

06-150

21-121