Were missionaries domiciled abroad Virginia residents for 2007 because they kept Virginia ties?

Plain-English summary

Virginia found the missionaries were not domiciliary residents for 2007, but their Virginia rental property required a nonresident return. They had established a permanent home, driver's licenses, and permanent resident status in the foreign country after moving there in 1993 for missionary work.

The couple also kept substantial Virginia connections: a house rented to others, use of a relative's address, a 2003 resident return, voter registration and Virginia driver's licenses obtained during a 2004 stay, later Virginia school attendance by their children, and 2010 license renewals. Virginia treated obtaining or renewing a Virginia driver's license as strong evidence of Virginia domicile, but not conclusive by itself.

Considering the whole record, the Department found they had not abandoned their foreign domicile. Their Virginia rental property nevertheless required a 2007 nonresident individual income tax return. The audit was returned for adjustment, the disallowed dependent exemptions were to be corrected, and a refund would issue if the recalculation produced an overpayment.

What this means for you

• Domicile depends on the complete pattern of intent and conduct, not one address or declaration.
• A Virginia driver's license is strong evidence of Virginia intent but is not automatically decisive.
• Owning Virginia rental property can require a nonresident return even when domicile is elsewhere.
• The taxpayer bears the burden of proving abandonment of a Virginia domicile when that is the issue.

Common questions

Q: Did periodic stays and Virginia documents make the couple residents?
A: No. On the full record, Virginia found they remained domiciled in the foreign country.

Q: Were they excused from all Virginia filing?
A: No. Their Virginia rental property required a nonresident return for 2007.

Citations and references

• Va. Code § 58.1-302.
• Va. Code § 46.2-323.1.
• Virginia Public Documents 00-151 (August 18, 2000) and 02-149 (December 9, 2002).

Subject

Person required to file income tax.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-8

Original ruling text

February 23, 2012

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 assessment issued to * (the "Taxpayers") for the taxable year ended December 31, 2007. I apologize for the delay in responding to your letter.

FACT

The Department received information from the Internal Revenue Service (IRS) indicating that third-party financial documents for the 2007 taxable year were sent to the Taxpayer at a Virginia address. A review of the Department's records indicated that the Taxpayer had not filed a Virginia individual income tax return.

Responding to an inquiry by the Department, the Taxpayer filed a nonresident individual income tax return for the taxable year at issue. Under audit, the Department determined that the Taxpayers were domiciliary residents of Virginia, after which the Taxpayers amended the filing to a resident income tax return. In processing the return, the Department disallowed a subtraction claimed to exclude an amount equivalent to the federal foreign income exclusion. The adjustment resulted in an assessment, which the Taxpayers have paid. The Taxpayers appeal the assessment, contending they were not residents of Virginia during the taxable year at issue.

DETERMINATION

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 or country, 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.

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 domicile.

The Department determines a taxpayer's intent through the information provided. The 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 Tax Commissioner must conclude that he or she intended to remain indefinitely in Virginia.

The Taxpayers performed a number of actions consistent with maintaining a domicile in a foreign country ("Country A"). The husband was raised in Country A after moving there with his parents. The Taxpayers have been career missionaries for a nonprofit organization located in * (State A). In 1993, the Taxpayers were assigned to Country A, where they have established a permanent place of abode, obtained driver's licenses and were granted permanent resident status by Country A's government. Based on the evidence, the Taxpayers established their domiciliary residence in Country A in 1993.

The Taxpayers have performed a number of actions indicating an intent to establish domicile in Virginia. The husband attended college in Virginia and purchased a house before leaving for Country A in 1993. On their periods of furlough or home assignments from the mission field, the Taxpayers returned to Virginia. When they returned to the United States, they lived in property provided for them because the Virginia residence is rented to third parties.

In addition, the Taxpayers have used the Virginia address of the wife's mother, but report that the address was used for convenience. In 2003, they filed a Virginia individual income tax return as residents. In 2004, they lived in Virginia for 160 days, during which time they registered to vote and obtained Virginia driver's licenses. In 2008, they lived in Virginia for a portion of the year during which time their children attended Virginia schools. In 2010, they renewed their Virginia driver's licenses.

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 Commissioner of the Department of Motor Vehicles a statement that certifies the applicant is a Virginia resident. A person providing a false statement is subject to punishment under the laws of the Commonwealth. The Department has found that an individual may successfully establish a domicile outside Virginia even if they retain a Virginia driver's license. See Public Document (P.D.) 00-151 (8/18/2000). However, obtaining or renewing a Virginia driver's license is considered to be a strong indicator of intent to retain domiciliary residency in Virginia. See P.D. 02-149 (12/09/2002).

While the Taxpayers have taken a number of actions that can be construed as acquiring a domicile in Virginia, the overall evidence provided indicates that the Taxpayers have not abandoned their domicile in Country A. As such, they were not required to file a Virginia income tax return as a resident for the 2007 taxable year.

Because the Taxpayers had rental property in Virginia, however, they would be required to file a 2007 nonresident individual income tax return. As such, the Taxpayers were correct in filing a Virginia nonresident return after they were contacted by the Department. Accordingly, the audit will be returned to the audit section for adjustment in accordance with this determination. In addition, the adjustment disallowing the dependent exemptions was done in error and will be corrected. Upon completion, a revised bill will be issued. A refund will be issued if the adjustment results in an overpayment.

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 website. If you have any questions concerning this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4751977229.E