Did working overseas for all of 2004 end Virginia domicile when the taxpayer kept an unleased Virginia home and driver's license?

Subject

Taxpayer lived and worked outside Virginia for the taxable year and owes state tax

Plain-English summary

The taxpayer worked overseas for all of 2004 and argued that his Virginia residence ended when the assignment began in November 2003. He intended to continue overseas work for seven to ten years but did not know where he would retire.

Virginia found that he remained domiciled in the Commonwealth. He continuously owned a Virginia home that was never rented, retained a Virginia driver's license, and registered another vehicle in Virginia after completing the first overseas contract. The 2004 assignment was for a fixed period, and he did not establish personal presence and an intent to remain permanently or indefinitely in a new domicile.

Virginia denied the withholding refund and required a 2004 resident return and any tax, penalty, and interest due. If the facts remained unchanged, the ruling also required resident returns for 2005 and later years.

What this means for you

• Spending an entire year outside Virginia does not end domicile without both abandoning Virginia and establishing a permanent or indefinite home elsewhere.
• Retaining an available Virginia home, license, and vehicle ties can outweigh statements about long-term overseas work.
• Domicile cases depend on the complete record of conduct, property, family, employment, and intent.

Citations and references

• Va. Code § 58.1-302, domiciliary and actual residence.
• Commonwealth v. B.J. McAdams, cited by the taxpayer but found inapplicable because it concerned corporate nexus.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-78

Original ruling text

May 18, 2007

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek a refund of individual income tax withheld from you (the "Taxpayer") for the taxable year ended December 31, 2004. I apologize for the delay in responding to your letter.

FACTS

Prior to 1996, the Taxpayer had never been a resident of Virginia. In September 1996, the Taxpayer purchased a home in Virginia with his wife. In August of 1996, the Taxpayer purchased a vehicle and registered it in Virginia. The Taxpayer renewed his Virginia driver's license in May 2001.

In October 2003, the Taxpayer took a position with a * (State A) company and sold his vehicle. In November 2003, the Taxpayer was assigned overseas. This assignment was completed in June 2005. In July 2005, the Taxpayer purchased another vehicle and registered it in Virginia. The Taxpayer has since been reassigned overseas. The Taxpayer has continuously owned the Virginia residence, which has never been leased to a tenant.

The Taxpayer filed a Virginia resident individual income tax return for the 2003 taxable year and paid Virginia income tax. The Taxpayer's employer withheld Virginia income tax for the 2004 taxable year. The Taxpayer contends that his Virginia residence ended in November 2003, when he was assigned overseas, and requests a refund of the 2004 income tax withheld. The Taxpayer states that he intends to work overseas for another 7 to 10 years, and he does not know where he will eventually retire. The Taxpayer contends that he lacks nexus with Virginia for income tax purposes because his ties with Virginia were minimal once he moved overseas.

DETERMINATION

Two classes of residents, a domiciliary resident and an actual resident, are set forth in Va. 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 actually reside elsewhere. For a person to change domiciliary residency to another state, 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, sites of real and 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 of the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.

The Department concedes that it is difficult to know whether a taxpayer intends to return to Virginia. The Department determines a taxpayer's intent through the information provided. The Taxpayer has the burden of proving that he or she has abandoned his or her Virginia domicile. If the information is inadequate to meet his or her burden, the Commissioner must conclude that he or she intended to remain indefinitely in Virginia.

The Taxpayer argues that when he was overseas he lacked sufficient contacts with Virginia to be domiciled in the Commonwealth. He cites Commonwealth of Virginia v. B.J. McAdams , 227 Va. 548, 317 S.E.2d 788 (1984) in support of his argument. This case addressed whether an out-of-state corporation that engages in interstate commerce through Virginia is subject to Virginia income taxation and is not applicable to the Taxpayer's situation.

The fact that the Taxpayer lived and worked outside Virginia for the entire 2004 taxable year does not necessarily prohibit Virginia from imposing tax on his income. The determinative question is whether the Taxpayer changed his legal domicile from Virginia to another state or country.

The Taxpayer was clearly a Virginia domiciliary resident prior to taking a position overseas in November 2003. The Taxpayer also performed actions consistent with maintaining a Virginia domicile after November 2003. These actions include maintaining a Virginia residence, retaining a Virginia driver's license and purchasing another car after returning to Virginia upon completion of his first overseas contract.

Based on the available evidence, it is my determination that the Taxpayer did not permanently abandon his Virginia domicile in November 2003 or thereafter. Actions such as maintaining a home and driver's license in Virginia and registering a car in Virginia more than a year after the Taxpayer supposedly abandoned his Virginia domicile are inconsistent with changing domicile. Further, the information provided indicates that the Taxpayer's overseas assignment during 2004 was not permanent, but a specific job for a set period of time. Accordingly, the Taxpayer has not established that he acquired a new domicile outside Virginia through personal presence and intent to remain there permanently or indefinitely.

Based on the foregoing, the Taxpayer's request for a refund for the taxable year ended December 31, 2004 is denied. Because the Taxpayer is a domiciliary resident of Virginia, he must file an individual income tax return for the 2004 taxable year and pay any tax, penalty and interest due. Please send the requested return to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: *. Furthermore, if the facts upon which this determination is based are unchanged, the Taxpayer is required to file a Virginia individual income tax return for 2005 and subsequent years.

The Code of Virginia sections cited, as well as forms and 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 regarding this determination, you may contact * at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/57254B