Could a person domiciled in another state exclude military pension income after living in Virginia for more than 183 days?

Subject

All pension income received by Virginia residents is subject to Virginia income tax

Plain-English summary

Virginia taxed the taxpayer's military pension because he was an actual Virginia resident during 2004 and 2005. Although he remained domiciled in State A, he maintained a permanent place of abode in Virginia and lived there for more than 183 days in each year.

Virginia's resident definition covered both domiciliary residents and actual residents. A person could therefore remain legally domiciled elsewhere yet still be taxed as a Virginia resident based on abode and days present.

The claimed pension subtraction also failed. Va. Code § 58.1-322 C 19 applied only to the extent retirement-plan contributions had been taxed by another state even though deductible for federal purposes. State A taxed only stock dividends and bond interest, so the taxpayer's military-retirement contributions had not been taxed there.

What this means for you

• Domicile in another state does not prevent Virginia actual-resident status.
• Maintaining a Virginia abode for more than 183 days can make worldwide pension income subject to Virginia resident tax.
• The pension subtraction cited in the ruling depended on proof that another state taxed the underlying contributions.
• Military status alone did not create the subtraction claimed in this case.

Common questions

Q: Was the taxpayer domiciled in Virginia?
A: No. He was domiciled in State A, but Virginia treated him as an actual resident based on his Virginia abode and days present.

Q: Why was the military pension taxable?
A: The ruling states that Virginia residents generally include pension income, and the taxpayer did not qualify for a statutory subtraction.

Q: Why did the subtraction fail?
A: State A had not taxed the taxpayer's military-retirement contributions, a condition of the cited subtraction.

Citations and references

• Va. Code §§ 58.1-302 and 58.1-322 C 19.
• P.D. 00-167 (Sept. 8, 2000) and P.D. 04-140 (Sept. 16, 2004).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-140

Original ruling text

July 30, 2008

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 assessments issued to * (the "Taxpayer") for the taxable years ended December 31, 2004 and 2005.

FACTS

The Taxpayer is a domiciliary resident of * ("State A") who is employed in Virginia. Due to the nature of his employment, he maintained a permanent place of abode in Virginia. During the taxable years at issue, he resided in Virginia for more than 183 days.

The Taxpayer filed Virginia resident individual income tax returns for the 2004 and 2005 taxable years and claimed a subtraction for his pension from the military. The Department disallowed the subtraction and assessed additional tax. The Taxpayer appeals the assessment, contending that his pension is not subject to Virginia tax because he is not a resident of Virginia.

DETERMINATION

Residency

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 an individual or the place to which he intends to return even though he may actually reside elsewhere. An actual resident of Virginia means an individual who, for an aggregate of more than 183 days of the taxable year, maintains a place of abode within Virginia, whether domiciled in Virginia or not.

A taxpayer can be an actual resident of Virginia without establishing domicile in the Commonwealth. See Public Document (P.D.) 00-167 (9/8/2000). As such, even if a taxpayer is a domiciliary resident of another state, he could still be an actual resident of Virginia and subject to Virginia income tax as a resident.

The evidence indicates the Taxpayer resided in Virginia for more that 183 days in each of the taxable years at issue. As such, the Taxpayer was an actual resident of Virginia during the 2004 and 2005 taxable years and subject to Virginia individual income tax as a Virginia resident.

Military Pension

In general, all pension income received by Virginia residents is subject to Virginia income tax. See P.D. 04-140 (9/16/2004). In determining Virginia taxable income, only those deductions and subtractions enumerated in the Code of Virginia are permitted. Virginia Code § 58.1-322 C 19 does provide a subtraction for income received from certain retirement and pension plans, "the contributions to which were deductible from the taxpayer's federal adjusted gross income, but only to the extent the contributions to such plan or program were subject to taxation under the income tax in another state."

State A taxes individual income to the extent of stock dividends and bond interest. Therefore, the Taxpayer's military retirement contributions were not subject to tax in State A. As such, the Taxpayer is not entitled to subtract military pension income under Va. Code § 58.1-322 C 19.

CONCLUSION

Based on the foregoing, the Department properly disallowed the subtraction claimed on the Taxpayer's 2004 and 2005 Virginia individual income tax returns for his military pension. Accordingly, the assessments at issue are correct and remain due and payable. The Taxpayer will receive an updated bill with accrued interest. The bill should be paid within 30 days of the bill date to avoid the accrual of additional interest.

The Code of Virginia sections and public documents cited are available online 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 * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-2169792760.B