Did a military spouse qualify for Virginia income tax protection when she obtained a Virginia driver's license and established domicile in Virginia?

Subject

Military spouse acquired Virginia domicile and did not qualify for the federal protection

Plain-English summary

Virginia denied the military spouse's 2009 withholding refund. The federal protection applied only if the spouse was in Virginia solely to accompany a service member under military orders and both spouses maintained the same domicile outside Virginia.

The taxpayer had originally shared the service member's State A domicile. After moving to Virginia in 2007, however, she established a permanent place of abode, accepted Virginia employment, surrendered her former driver's license, and obtained a Virginia driver's license. Virginia law required a license applicant to certify Virginia residency, while military spouses had exceptions allowing them to keep an out-of-state license.

The spouse retained voter registration in State A, but the Department weighed all the circumstances and found that her Virginia actions were sufficient to acquire Virginia domicile in 2007. Because her domicile no longer matched the service member's, she was not protected from Virginia income tax for 2009 and had to file resident returns for 2009 and 2010.

What this means for you

• Military orders do not automatically exempt every military spouse from Virginia income tax.
• The spouse and service member had to share the same out-of-state domicile under the rule applied in this decision.
• A Virginia driver's license, permanent home, and Virginia employment can outweigh evidence such as out-of-state voter registration.
• Domicile depends on the full record, including actions that may be inconsistent with an asserted home state.

Common questions

Was out-of-state voter registration enough to preserve domicile?

No. Virginia considered it relevant but found that the spouse's Virginia license, home, and employment showed a change of domicile.

Why did the driver's license matter?

Virginia required applicants to certify that they were Virginia residents, and military spouses could use statutory exceptions to keep out-of-state licensing.

What was the final result?

The 2009 nonresident refund claim was denied, and the taxpayer was directed to file Virginia resident income tax returns for 2009 and 2010.

Citations and references

• Servicemembers Civil Relief Act, cited in the ruling as U.S.C. § 571 et seq.
• Va. Code §§ 46.2-323.1, 46.2-306, 46.2-600, and 58.1-111.
• Virginia Tax Bulletin 10-1.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-59

Original ruling text

April 27, 2012

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. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer and a service member were married in 1995 while they both were domiciliary residents of * (State A). The service member was transferred to (State B) in October 2000. When the service member was transferred to Virginia in 2007, the Taxpayer surrendered her ** driver's license and obtained a Virginia driver's license. In addition, the Taxpayer established a place of abode and accepted employment from a Virginia business. In June 2009, the Taxpayer filed a special claim for refund of individual income tax withholding.

The Department denied the claim for refund on the basis that the Taxpayer and the service member were married after the Taxpayer moved away from State A and did not reside in State A after their marriage. The Taxpayer appeals the refund denial, contending she maintained her domiciliary residence in State A.

DETERMINATION

The Servicemembers' Civil Relief Act (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.

In general, the Department will not seek to tax the spouse of a military service member so long as the member maintains sufficient connections with another state to indicate intent to maintain domicile. The Taxpayer provided a copy of her State A voter's registration card as proof of her intent to maintain her connections to State A. The Department agrees that holding one's voting privileges in another state is a factor to consider in determining domicile, but other factors must be considered. While residing in Virginia, the Taxpayer established a permanent place of abode, found employment in Virginia, and obtained a Virginia 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." Every person applying for a driver's license must execute and furnish to the Department of Motor Vehicles a statement that certifies the applicant is a Virginia resident. Virginia Code §§ 46.2-306, and 46.2-600, however, provide exemptions for nonresident armed service personnel, their spouses and dependent children from Virginia's licensing and motor vehicle registrations requirements.

Based on the preponderance of evidence provided, the Department must conclude that the Taxpayer took sufficient steps to acquire domicile in Virginia in 2007. As such, the Taxpayer did not maintain the same domicile as the service member; therefore, she does not qualify for the protection of the Act. Accordingly, the claim for nonresident refund is denied and the Taxpayer is required to file individual income tax returns as a resident of Virginia for the 2009 and 2010 taxable years.

The requested returns, along with the payment of any tax due, should be submitted to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attention: *, P.O. Box 27203, Richmond, Virginia 23261-7203 within 30 days of the date of this letter. If the returns are not filed, the Department may issue assessments based on the information available pursuant to Va. Code § 58.1-111.

The Code of Virginia sections 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/1-4826078235.D