Did taking a permanent job and leasing a home in another state end a taxpayer's Virginia domicile when his family, home, licenses, and registrations remained in Virginia?

Subject

Taxpayer failed to abandon Virginia domicile for the taxable year and is subject to tax

Plain-English summary

Virginia found that the taxpayer remained a Virginia domiciliary resident for 2004 and therefore owed Virginia individual income tax. His permanent job and leased residence in State A were evidence of a possible change, but they did not outweigh his continuing Virginia connections.

The taxpayer jointly owned the Virginia home where his wife lived, kept three vehicles registered in Virginia, remained registered to vote there, and continued receiving information returns at the Virginia address. Most importantly, he renewed his Virginia driver's license twice after moving to State A, which the Department treated as a strong declaration that Virginia remained his domicile.

The Department also denied penalty relief. It said reliance on inaccurate advice from an accountant, lawyer, or preparer was not reasonable cause for waiving the late-payment penalty under Va. Code § 58.1-105.

What this means for you

• Changing domicile requires both abandoning the old domicile and establishing a new one with intent to remain.
• Employment and a second residence are relevant, but Virginia weighs all conduct and connections together.
• A Virginia driver's license, vehicle registrations, voter registration, family home, and mailing address can be strong evidence of continued domicile.
• Under this ruling, relying on a tax professional's mistaken domicile advice did not establish reasonable cause for penalty relief.

Common questions

Q: Was working full time and leasing a home in State A enough?
A: No. Those facts were outweighed by the taxpayer's continuing Virginia ties.

Q: Why did the driver's license matter so much?
A: Virginia licenses are issued to residents, and the taxpayer renewed his license twice after beginning to live in State A.

Q: Did the Department waive the late-payment penalty?
A: No. It did not treat erroneous accountant advice as reasonable cause.

Citations and references

• Va. Code §§ 58.1-302 and 58.1-105; Va. Code § 46.2-323.1.
• P.D. 02-149 and P.D. 00-151.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-69

Original ruling text

May 22, 2008

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 assessments issued to * (the "Taxpayer") for the 2004 taxable year.

FACTS

Prior to 2001, the Taxpayer and his wife resided in Virginia. In February 2001, the Taxpayer accepted a position with a corporation located in * (State A). Pursuant to this job, the Taxpayer leased a residence in State A. The Taxpayer continued to jointly own a home in Virginia where his wife lived during 2004. The Taxpayer maintained his Virginia driver's license and voter registration. In addition, the Taxpayer had three vehicles registered in his name in Virginia.

The Taxpayer did not file a Virginia income tax return for the 2004 taxable year. Under audit, the Department determined that he was a Virginia resident and assessed Virginia income tax, penalty, and interest. The Taxpayer contends that he was a domiciliary resident of State A during the taxable year at issue. The Taxpayer also argues that penalty should be waived because he relied on his accountant's advice regarding domicile.

DETERMINATION

Domicile

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 determines a taxpayer's intent through the information provided A 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 performed two actions consistent with changing domicile to State A. He accepted a full-time, permanent position with a company located in State A and leased a residence in State A. The Taxpayer, however, performed numerous actions that are consistent with maintaining a Virginia domicile. The Taxpayer maintained a Virginia driver's license during the taxable year at issue. His cars were registered in Virginia. He jointly owned a residence with his wife in Virginia. He was registered to vote in Virginia and his informational returns were sent to Virginia residence.

The Taxpayer concedes that he maintained a Virginia driver's license, but that he has since acquired a State A driver's license. Virginia Code § 46.2-323.1 states, "No driver's license . . . shall be issued to any person who is not a Virginia resident." The Department has ruled that obtaining or renewing a Virginia licenses is a strong indicator of an individual's intent to be a domiciliary resident of Virginia. See Public Document (P.D.) 02-149 (12/09/2002). The Department has also found that an individual may successfully establish a domicile outside Virginia even if they retain a Virginia driver's license. See P.D. 00-151 (8/18/2000). In this case, however, the Taxpayer renewed his Virginia driver's license twice, once in March 2001 and again in March 2006, after he began residing in State A. The renewal of a Virginia driver's license is considered to be a strong declaration of intent to maintain a Virginia domicile.

The Taxpayer contends that he believed he cancelled his Virginia voter registration by moving to State A. While the Taxpayer may have believed that his Virginia voter registration was cancelled when he moved to State A, he failed to register to vote in State A. This raises further doubts as to the Taxpayer's intent to change his domicile.

The Taxpayer contends that his wife stayed in the Virginia residence in order to support their children through their post-secondary education, after which she would join him in State A. The Taxpayer states that it was important for either he or his wife to remain in close proximity to provide ongoing support. These reasons reveal the Taxpayer's desire to maintain his connections with Virginia.

The Taxpayer avers that his informational returns were sent to the Virginia residence because they were either for joint investments with his wife or they had always been sent to the Virginia address. While not a strong indicator of intent, when considered with other evidence, it can be indicative of domiciliary intent.

Penalty

The Taxpayer requests that the late payment penalty be abated because he made a good faith effort to change his domicile from Virginia to State A following a consultation with his certified public accountant (CPA). Virginia Code § 58.1-105 grants the Tax Commissioner authority to waive penalty for reasonable cause.

In a situation where a taxpayer relies on his accountant, lawyer, or tax preparer, and the accountant, lawyer, or tax preparer provides inaccurate or erroneous advice that results in a penalty, the taxpayer has recourse against the accountant, lawyer, or tax preparer for the error. The Department will not consider such circumstances as reasonable cause to waive a penalty. Accordingly, the Taxpayer's request for the waiver of penalty is denied.

CONCLUSION

After careful consideration of all the information provided, I find that the weight of the evidence shows that the Taxpayer failed to abandon his Virginia domicile for the 2004 taxable year. Therefore, the Taxpayer was subject to Virginia individual income tax.

A revised bill, with interest accrued to date, will be sent to the Taxpayer. No additional interest will accrue provided the outstanding balance in paid within 30 days from the date of the revised bill.

The Code of Virginia sections and public documents 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/1-1919567797.B