Did the Servicemembers Civil Relief Act exempt a military spouse who had established her own Virginia domicile?

Plain-English summary

Virginia denied the refund because the military spouse had established her own Virginia domicile. She moved to Virginia before marrying the service member, maintained a permanent abode and employment there, later registered to vote in Virginia, obtained a Virginia driver's license, and surrendered her former state's license.

The Servicemembers Civil Relief Act protected a service member or spouse from gaining or losing domicile solely because presence in a state complied with military orders. It did not prevent either person from voluntarily establishing a new domicile through intent and conduct.

Virginia Tax Bulletin 10-11 required the spouse to share the service member's domicile for the military-spouse income-tax exemption. The Department found that the taxpayer's Virginia actions were inconsistent with retaining the other-state domicile. Her 2009 withholding refund was therefore denied.

What this means for you

• Military orders alone do not create or destroy domicile under the federal protection.
• A spouse must independently examine whether their domicile matches the service member's.
• Voting, driver's licensing, permanent housing, and employment can evidence a voluntary domicile change.
• A refund claim requires facts consistent with continued domicile in the claimed state.

Citations and references

• Servicemembers Civil Relief Act, 50 U.S.C. § 571 et seq.
• United States v. Minnesota Department of Revenue, 97 F. Supp. 2d 973 (2000).
• Virginia Tax Bulletin 10-11.

Subject

The Servicemembers Civil Relief Act

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-104

Original ruling text

June 10, 2011

Re: § 581-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek a refund of the Virginia individual income tax withheld for * (the "Taxpayer") for the taxable year ended December 31, 2009. I apologize for the delay in the Department's response.

FACTS

The Taxpayer moved to Virginia in May 2003. She established a permanent place of abode, accepted employment at a Virginia company, and in October 2003, married a nonresident military service member serving at a Virginia duty station. Prior to moving to Virginia, both the Taxpayer and the service member were domiciliary residents of * (State A). The Taxpayer obtained a Virginia voter's registration card in 2008 and surrendered her State A driver's license and obtained a Virginia driver's license in 2009.

The Taxpayer filed a refund claim for nonresident withholding for the 2009 taxable year. Under review, the Department concluded that the Taxpayer was a resident of Virginia before she married the service member, denied the refund claim and issued an assessment for tax and interest. The Taxpayer appeals the assessment, contending she shared the same domicile as the service member prior to joining him in Virginia.

DETERMINATION

The Servicemembers Civil Relief Act (the "Act"), codified at 50 U.S.C. § 571 et seq. , was amended, effective for the 2009 taxable year and thereafter, to provide that a service member or their spouse can neither lose nor acquire domicile or residence in a state when the service member or the spouse is present in the state solely in compliance with the service member's military orders.

The Act, however, does not preclude the possibility that armed forces personnel or their spouse may acquire a new legal domicile in the state where they are stationed, and thus subject themselves to taxation by that state as if they were domiciliary residents. In order for the change of domicile to occur, there must be an abandonment of the old domicile and the acquisition of a new one. This change must be exhibited by an individual's intent and conduct. See United States of America v. Minnesota Department of Revenue , 97 F. Supp. 2d 973 (2000).

In Virginia Tax Bulletin 10-11, the Department interprets the Act and explains that the domicile of a military spouse must be the same as the service member in order to be exempt from Virginia's income tax. The determination of a military spouse's domicile requires analysis of the facts and circumstances. The elements that may be examined include:

1. Whether the person claiming exemption is married to a service member who is present in Virginia pursuant to military orders.

2. The service member's domicile.

3. The spouse's domicile and the circumstances in which it was established.

4. The extent to which the spouse has maintained contacts with the domicile.

5. Whether the spouse has taken any action in Virginia that is inconsistent with maintaining a domicile elsewhere.

The Department must examine all the facts and circumstances regarding the military spouse in order to determine the domiciliary residence of such individual. In this instance, the Taxpayer took actions in Virginia that are inconsistent with maintaining domicile in State A. Such acts include registering to vote in Virginia, obtaining a Virginia driver's license, and surrendering the State A driver's license.

Based on all the information presented, I find that the Taxpayer took sufficient steps to abandon her domicile in State A and establish domicile in Virginia. In establishing domicile separate from the service member, the Taxpayer lost the protection provided by the Act. As such, the Taxpayer's request for refund of tax withheld for the 2009 taxable year is denied.

The tax bulletin cited is 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,

Craig M. Burns

Tax Commissioner

AR/1-4536523752.D