Did a military spouse qualify for a Virginia withholding refund when she and the service member did not share the same domicile?

Plain-English summary

Virginia denied the military spouse's 2009 withholding refund because she and the service member did not share the same domicile. The spouse appeared to maintain State A domicile, while the service member had originally been domiciled in State B.

The service member took steps pointing toward State A: vehicle registration, voter registration, and State A withholding. But he had never physically lived there. Because acquiring a new domicile required both intent and personal presence, those actions did not establish State A domicile.

The couple moved to Virginia after an assignment to a State C duty station and later bought a Virginia home. The service member kept his State B license until October 2009, then obtained a Virginia license. Whatever his final domicile, it was not shown to be State A.

Under the 2009 military-spouse provision described in the ruling, the spouse qualified only if she shared the service member's domicile. She did not, so the refund denial stood.

What this means for you

• Military-spouse relief can depend on both spouses sharing one domicile.
• Intent alone cannot establish a new domicile without physical presence.
• Voting, vehicle registration, licenses, and home ownership must be evaluated together.
• Apply the federal rules in effect for the specific tax year.

Common questions

Q: Did the spouse keep State A domicile?
A: The ruling said she appeared to have maintained it.

Q: Why did the service member fail to establish State A domicile?
A: He had never been physically present there.

Q: What happened to the refund claim?
A: Virginia upheld its denial.

Citations and references

• Va. Code § 58.1-302.
• Servicemembers Civil Relief Act, U.S.C. § 571 et seq. (as cited in the ruling).
• Virginia Tax Bulletin 10-1.
• Coopers Adm'r v. Commonwealth, 121 Va. 338, 93 S.E. 680 (1917).
• United States of America v. Minnesota Department of Revenue, 97 F. Supp. 2d 973 (2000).

Subject

Servicemembers Civil Relief Act

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-158

Original ruling text

September 16, 2011

Re: § 58.1-1821 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.

FACTS

The Taxpayer, a resident of * (State A), married a military service member domiciled and stationed in (State B) in July 2001. In May 2006, the service member was assigned to a duty station in ** (State C). The Taxpayer and the service member moved to Virginia. The Taxpayer filed a Special Claim for Refund to receive her income tax withholding for the 2009 taxable year. The Department denied the refund on the basis that the Taxpayer did not share a domicile with her husband prior to residing in Virginia. Therefore, she did not qualify for the relief under the Servicemembers Civil Relief Act (the "Act").

The Taxpayer appeals the denial of the refund, contending that both she and the service member were domiciliary residents of State A.

DETERMINATION

Residency of Spouse of Military Service Member

The Act, codified at U.S.C. § 571 et seq. , was amended effective for the 2009 taxable year and thereafter, to provide that a spouse can neither lose nor acquire domicile or residence in a state when the spouse is present in the state solely to be with the service member in compliance with the service member's military orders if the residence or domicile is the same for both the service member and spouse. The Act does not apply to the spouses of military and naval personnel who have established domiciliary status within Virginia. In VTB 10-1, the Department explained 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.

While the issue at hand involves a request for refund by a spouse of a military service member, facts obtained during the review of the appeal raise a question as to the domiciliary residence of the service member. Therefore, before a determination can be made on the validity of the refund claim, the Department must first consider the service member's domicile.

Residency of a Military Service Member

Virginia Code § 58.1-302 defines domiciliary residence of a person as 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 present domicile with no intention of returning. Concurrently, that person must acquire a new domicile where that person is physically present with the intention to remain there permanently or indefinitely.

The Act provides that military and naval personnel do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different: state or country. The Act, however, does not preclude the possibility that armed forces personnel 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 a domiciliary resident. 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 general, the Department will not seek to tax a military service member so long as the member maintains sufficient connections with another state to indicate intent to maintain domicile there. Such connections would include filing a State of Legal Residence Certificate (Department of Defense Form 2058), obtaining a driver's license, registering to vote and voting in local elections, registering an automobile, and exercising other benefits or obligations of a particular state. As long as a military service member maintains such connections, he or she would be considered to be a resident of the other state even though he or she works, lives, and establishes a permanent place of abode in Virginia.

In this case, the Taxpayer argues that the service member intended to change his domicile to State A. While the service member demonstrated his intent to abandon State B when hey registered his motor vehicles, registered to vote, and elected to withholding individual income tax in State A, the documents provided indicate he never physically resided in State A.

In Coopers Adm'r v. Common Wealth 121 Va. 338, 93 S.E 680 (1917), the Virginia Supreme Court ruled that acquiring domicile in another state requires both intent and personal presence. In this case, the service member was transferred to a duty station in State C in 2006. At that time he established a permanent place of abode in Virginia. Subsequently, he and the Taxpayer purchased a home in Virginia. The service member held his State B driver's license until October 2009. When the State B driver's license expired, he applied for and received a Virginia driver's license.

Based on the information provided, the Taxpayer appears to have maintained her State A domicile. However, while the service member successfully abandoned his State B domicile, he did not establish a domicile in State A because he was never physically present there. Accordingly the Taxpayer and the service member did not share the same domicile for the 2009 taxable year, and the Taxpayer does not qualify for a refund under the provisions of the Act. Therefore, the denial of the refund is upheld.

The Code of Virginia section and Tax Bulletin cited 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, please contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4684459842.D