We didn't file a 2019 Virginia return because the income was earned in another state — are we still Virginia residents, and can we at least get credit for the other state's income tax?

Plain-English summary

A husband and wife hadn't filed a 2019 Virginia income tax return, and in an earlier determination — P.D. 24-21 (3/13/2024) — the Department gave them one final opportunity: file the return or complete a domicile questionnaire. They completed the questionnaire, so the Department ruled on the merits.

The questionnaire confirmed Virginia residency rather than disproving it. The couple reported owning two residences in Virginia, holding Virginia driver's licenses, and having three vehicles registered in Virginia. They listed no residence owned or leased outside Virginia and offered nothing suggesting they resided anywhere else or had built ties to another state. They had also filed Virginia resident returns in the years before and after 2019.

Why that decides the case:

• A state may tax all the income of its residents, even income earned outside the state (New York ex rel. Cohn v. Graves, 300 U.S. 308, 312–313 (1937)). So "the income wasn't earned in Virginia" is not, by itself, a defense for a resident.
• Virginia recognizes two classes of residents (Va. Code § 58.1-302): a domiciliary resident (Virginia is the permanent home the person intends to return to, even while living elsewhere) and an actual resident (a place of abode in Virginia for more than 183 days of the year). Either one is enough to be taxed as a resident.
• Changing domicile takes two things at once: actual abandonment of the old domicile with no intent to return, and acquisition of a new domicile through personal presence plus intent to remain permanently or indefinitely (Cooper's Adm'r v. Commonwealth, 121 Va. 338, 347 (1917)). The burden of proof is on the individual (23 VAC 10-110-30 B 3), weighed through factors like property, vehicle registration and licenses, voter registration, employment, and family location — no single factor controls.

With every factor pointing at Virginia and no evidence of a life anywhere else, the couple remained taxable as either actual or domiciliary residents for 2019.

The consolation prize — the out-of-state credit. The husband said he didn't work in Virginia that year; the Department's records showed the couple lived in a county bordering another state ("State A") and claimed a credit for State A tax on their 2020 Virginia return. If they also paid State A income tax for 2019, Va. Code § 58.1-332 A allows Virginia residents a credit for income tax paid to another state on earned or business income (or capital-asset gain). The credit is not necessarily the full amount paid: it's limited to the lesser of the tax actually paid to the other state or the Virginia tax attributable to that same income, computed by the statutory fraction (P.D. 97-301).

The ordered next step: because the assessment was an estimate made on the best information available (Va. Code § 58.1-111), the Department directed the couple to file a 2019 Virginia resident return claiming any § 58.1-332 credit within 30 days of the letter; the assessment would then be adjusted as warranted. If no return arrived, the assessment would be considered correct.

What this means for you

If you live in Virginia but earn your income in another state

Being a Virginia resident means Virginia can tax your entire income, wherever earned. The remedy isn't to skip the Virginia return — it's the credit for taxes paid to another state on the Virginia resident return, which offsets the double tax up to the Virginia tax on that income.

If you claim you moved out of Virginia

You carry the burden of proving both halves of a domicile change: abandoning Virginia and establishing the new home. Keep evidence — an out-of-state residence, driver's license, vehicle registrations, voter registration, employment ties. A questionnaire showing only Virginia homes, Virginia licenses, and Virginia-registered vehicles proves the Department's case, not yours.

If you receive a domicile questionnaire or a best-information assessment

Answering the questionnaire gets you a determination on the merits, and even a loss can come with instructions for reducing the bill — here, a 30-day window to file a resident return claiming the credit. Ignoring the process leaves an estimated assessment standing (a companion 2025 ruling in this corpus, addressing a nonfiler who never answered, shows the harsher endgame).

Common questions

Q: The husband didn't work in Virginia at all in 2019. Why does Virginia get to tax that income?
A: Because residents are taxable on all income regardless of where it's earned — a principle the U.S. Supreme Court recognized in New York ex rel. Cohn v. Graves. Residency, not the income's source, was the deciding question.

Q: What evidence hurt the taxpayers most?
A: Their own questionnaire: two Virginia residences, Virginia driver's licenses, three Virginia-registered vehicles, no out-of-state residence listed, and Virginia resident returns filed in the surrounding years.

Q: Did they end up owing tax on everything with no relief?
A: Not necessarily. The Department invited them to file a 2019 resident return claiming the § 58.1-332 credit for any income tax actually paid to State A — limited to the lesser of the other state's tax or the Virginia tax on that income.

Q: What happens if they don't file within the 30 days?
A: The estimated assessment issued under Va. Code § 58.1-111 is considered correct and stands.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1821 — administrative appeal (application for correction) to the Tax Commissioner
• Va. Code § 58.1-301 — conformity to the Internal Revenue Code; Virginia taxable income starts from federal adjusted gross income
• Va. Code § 58.1-302 — domiciliary resident and actual resident (more than 183 days) defined
• Va. Code § 58.1-332 A — credit for income taxes paid to another state; lesser-of limitation
• Va. Code § 58.1-111 — assessment on the best information available when no return is filed
• 23 VAC 10-110-30 B 3 — burden of proof and factors for domicile changes

Authorities the Department relied on (described here, not linked): New York ex rel. Cohn v. Graves, 300 U.S. 308, 312–313 (1937) (a state may tax all income of its residents); Cooper's Adm'r v. Commonwealth, 121 Va. 338, 347 (1917) (two-part test for changing domicile); P.D. 97-301 (7/7/1997) (out-of-state credit limited to the lesser of the tax paid or the Virginia tax on that income); P.D. 24-21 (3/13/2024) (the prior determination giving these taxpayers a final chance to respond).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-44

Original ruling text

April 3, 2025

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 “Taxpayers”) for the taxable year ended December 31, 2019.

FACTS

In Public Document (P.D.) 24-21 (3/13/2024), the Department gave the Taxpayers, a husband and wife, one final opportunity to file a Virginia individual income tax return or submit a completed domicile questionnaire regarding their residency status. Because the Taxpayers have provided a completed questionnaire, the Department will now issue a determination on the merits.

DETERMINATION

Taxation of Virginia Residents

Virginia Code § 58.1-301 provides, with certain exceptions, that the terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income (VTI) with federal adjusted gross income (FAGI). Income properly 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 Chapter 3 of Title 58.1 of the Code of Virginia .

It is well established that a state may tax all the income of its residents, even income earned outside the taxing jurisdiction. In New York ex rel. Cohn v. Graves , 300 U.S. 308, 312-313 (1937), the United States Supreme Court explained “[t]hat the receipt of income by a resident of the territory of a taxing sovereignty is a taxable event is universally recognized.” As such, even if the Taxpayers had no Virginia source income, they would have been subject to Virginia income tax if they had been Virginia residents.

Residency

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. 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 continues to be subject to Virginia taxation, even if they work in another state or country. 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 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. See Cooper’s Adm’r v. Commonwealth , 121 Va. 338, 347 (1917). The burden of proof that an individual has abandoned or failed to establish domicile in Virginia rests with the individual. See Title 23 of the Virginia Administrative Code (VAC) 10-110-30 B 3.

The determination of whether a change of domicile has occurred is highly dependent on the facts and circumstances of the individual case, and no single factor is dispositive. Factors to be considered include, but are not limited to, the following:

situs of real or tangible property, location of savings and checking accounts, motor vehicle registration and licensing, motor vehicle operator’s license, voter registration, membership in clubs and civic groups, place of business, profession or employment, charitable contributions, location of schools attended by children, length of time of residence, place of birth and marriage, residence of family, reason for abandoning or acquiring domicile, and, in the case of a minor or married person, domicile of parents, husband or wife, and/or children. Id.

The Taxpayers filed Virginia resident income tax returns in taxable years before and after the taxable year at issue. On the completed domicile questionnaire, the Taxpayers stated that they owned two residences in Virginia, maintained Virginia driver’s licenses, and had three vehicles registered in Virginia. The Taxpayers did not provide any information that would indicate they resided anywhere else other than Virginia or established connections with any other state that might suggest they intended to change their domicile. In particular, they did not list any residences owned or leased by them outside 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. 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 husband states that he did not work in Virginia during the taxable year at issue. The Department’s records indicate that the Taxpayers resided in a county bordering * (State A) and claimed credit for tax paid to State A on their 2020 Virginia income tax return. If the Taxpayers also paid income tax to State A for the 2019 taxable year, they would be eligible to claim a credit on their Virginia income tax return to the extent allowed under Virginia Code § 58.1-332.

CONCLUSION

The Taxpayers have not presented any evidence to establish residency outside of Virginia. Therefore, after considering all of the information provided, the Department finds that the Taxpayers remained taxable as either actual or domiciliary residents of Virginia for the 2019 taxable year. As such, the Taxpayers remained subject to Virginia income tax even if the husband’s income was earned in another state. The Taxpayers may, however, be able to claim a credit for any income tax paid to such other state.

The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayers, however, may have information that better represents their Virginia income tax liability for the taxable year at issue. Therefore, they should file a 2019 Virginia resident income tax return and claim credit for income tax paid to another state to the extent permitted by Virginia Code § 58.1-332. The return should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *. The return will be reviewed and processed, and the assessment will be adjusted as warranted. If the return is not received within the allotted time, the assessment will be considered correct.

The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public document cited is available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at or email at **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4892.Q

Related Documents

97-301

24-21