Did a taxpayer abandon Virginia domicile during 2002 by leasing a home from his daughter in another state after his Virginia employer entered bankruptcy?

Subject

Taxpayer given time to re-file tax return under different residency status

Plain-English summary

Virginia found that the taxpayer remained a domiciliary resident for all of 2002, but allowed him 30 days to file a full-year resident return with more accurate income information.

The taxpayer moved to Virginia for permanent employment in 2001. When the company entered bankruptcy, he signed a retention agreement and later claimed to have moved back to State A, where he kept his driver's license, vehicle registration, voting ties, and leased a residence from his daughter.

The Department found the claimed return to State A temporary rather than a permanent change of domicile. He continued spending time at the Virginia apartment, sought only Virginia employment, used a Virginia address for unemployment benefits, and in 2003 obtained a new Virginia job, home, driver's license, vehicle registration, and voter registration.

Because the existing assessment used the best information available, Virginia invited a full-year return that could more accurately report 2002 taxable income. If he did not file within 30 days, the issued assessment would become immediately due and collection would resume.

What this means for you

• Retaining another state's license and voter registration does not alone prove a domicile change.
• A move driven by job disruption or family illness may appear temporary when the taxpayer continues seeking Virginia work.
• Addresses used for benefits, housing arrangements, relationships, and later conduct can inform intent.
• When an assessment is estimated, a corrected return may change the amount without changing residency status.

Common questions

Was the taxpayer treated as a part-year resident? No. Virginia found full-year domiciliary residency for 2002.

Did the ruling state the correct final tax amount? No. It requested a full-year return to determine taxable income more accurately.

What happened if he did not file within 30 days? The assessment as issued would become due and collection would resume.

Citations and references

• Va. Code § 58.1-302.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-144

Original ruling text

September 12, 2007

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the Virginia individual income tax assessment issued to * (the Taxpayer) for the taxable year ended December 31, 2002. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer moved to Virginia from * (State A) in April 2001, after accepting employment with *** (the "Company"). In July 2002, the Company filed bankruptcy. The Taxpayer entered into a retention agreement with the Company that provided additional bonus payments for continued services and meeting certain financial goals related to the sale of the Company.

The Taxpayer filed a Virginia part-year resident individual income tax return for the 2002 taxable year, indicating he was a resident of Virginia into November. Payments made under the retention agreement in November and December 2002, were not reported as income from Virginia.

Under audit, the Department determined that the Taxpayer was a domiciliary resident of Virginia for the entire 2002 taxable year. As a result, the Department issued an assessment to the Taxpayer for the taxable year ended December 31, 2002. The Taxpayer contends that he was not a resident when the payments were received, and that the services for which the payments were made were not performed in Virginia. The Taxpayer requests the assessment be abated.

DETERMINATION

Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. Code § 58.1-302. Domiciliary residence means the permanent place of residence of a taxpayer or the place to which he or she intends to return even though they may actually reside elsewhere. For an individual to change domiciliary residency to another state, that individual must intend to abandon their Virginia domicile with no intention of returning to Virginia. Concurrently, that individual 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 an individual who, for an aggregate of more than 183 days of the taxable year, maintained a place of abode within Virginia. A Virginia domiciliary resident, therefore, working in other parts of the country who has not abandoned his Virginia residency continues to be subject to Virginia taxation. Additionally, an individual 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 as a resident.

In determining domicile, consideration may be given to an 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, sites of real and tangible property, motor vehicle registration and licensing, and such other factors as may be reasonably deemed necessary to determine an individual's domicile. An individual's true intention must be determined with reference to all of the facts and circumstances of the particular case. A simple declaration is not sufficient to establish domiciliary residency.

The Taxpayer performed several actions that are consistent with obtaining and retaining a Virginia domicile. He moved to Virginia in April 2001 to manage the Company's operations in Virginia. He leased a residence in Virginia. With the knowledge that the Company would be going through bankruptcy, he signed a retention agreement, providing bonus payments and guaranteeing his continued employment with the Company through November 2002, or the end of the bankruptcy proceedings, whichever was earlier. The part-year resident individual income tax return filed for the 2002 taxable year shows Virginia residency into November 2002. After being terminated, the Taxpayer sought employment in Virginia and eventually found a position in August 2003. At this time, he moved to a new residence in Virginia.

The Taxpayer also performed several actions that are consistent with a State A domicile. He maintained his driver's license, vehicle registration, and voting residence in State A, and renewed the vehicle registration while living in Virginia. In addition, he leased a residence in State A from his daughter, claiming to have moved there in July 2002.

Determination of domicile is made more difficult in this case because the Taxpayer did not perform certain actions typically involved in moving one's domicile and residing in Virginia. While he moved to Virginia for permanent employment, he did not obtain a Virginia driver's license, register his automobile, or register to vote in Virginia. Instead, he maintained his State A driver's license and renewed his State A automobile registration.

The Department acknowledges that a change in domicile occurs as part of a process in which no single factor is determinative. In this case, the Taxpayer failed to change his driver's license, auto registration, and voter registration when he moved to Virginia. Whether it was simple oversight or his response to the Company's financial situation that delayed the change, the Taxpayer eventually obtained a Virginia driver's license, voter registration, and registered his automobile in Virginia in August 2003.

The evidence provided regarding the Taxpayer's intention to move back to State A permanently during 2002 is not convincing. One document indicates that the move back to State A was precipitated, at least in part, by the Taxpayer's desire to be closer to his children and because of an illness in the family. These events were temporary, as the Taxpayer secured employment and moved to a new residence in Virginia in 2003. There is no indication that the Taxpayer attempted to obtain employment in any state other than Virginia.

Furthermore, the Taxpayer shared his apartment with his girlfriend prior to changes in his employment status. He sublet his Virginia abode to the girlfriend in the same month that he signed the retention agreement. The Taxpayer spent time in Virginia at the apartment during the period between November 2002 and August 2003. By August 2003, the Taxpayer was again employed in Virginia in a different city and obtained a new permanent place of abode. Simultaneously, the girlfriend moved to the Taxpayer's new residence in Virginia.

In addition, the Taxpayer applied for unemployment benefits with the Virginia Employment Commission in January 2003. His application indicates that he was residing at his leased home in Virginia. Subsequent benefit payments were mailed to his Virginia address. Although a person is not required to be a Virginia resident in order to receive benefits, the fact that the Taxpayer used his Virginia address to apply for and receive benefits is further indication of his intent to be a domiciliary resident of Virginia.

Based on the all information presented, it is my determination that the Taxpayer became a domiciliary resident of Virginia when he moved to Virginia to manage the Company's operations in Virginia on a permanent basis. His actions did not show that his subsequent return to State A was for the purpose of making it his permanent domicile. Accordingly, the Taxpayer remained a domiciliary resident of Virginia for the entire 2002 taxable year.

The assessment for the 2002 taxable year was made based on the best information available to the Department. The Taxpayer may have additional information that more accurately reflects his taxable income for the 2002 taxable year. The Taxpayer is, therefore, requested to file an individual income tax return as a full-year resident for the 2002 taxable year.

The return should be filed, along with the appropriate payment, within 30 days from the date of this letter. The return and payment should be submitted to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *.

If the 2002 return is not filed within the allotted time, the assessment as issued will become immediately due and payable, and collection action will resume. A schedule is enclosed showing the current outstanding balance. No additional interest will accrue provided the total outstanding balance is paid within 30 days from the date of this letter. You may remit payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attention: *. If you have questions concerning payment of the assessment, you may contact at **.

The Code of Virginia sections cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact * at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/56032E