Did a military spouse prove she shared the service member's out-of-state domicile and qualified for Virginia withholding refunds?

Subject

Military spouse had not proved shared out-of-state domicile

Plain-English summary

Virginia upheld the 2009 and 2010 assessments on the existing record because the military spouse did not prove that she shared and maintained the service member's out-of-state domicile. The Servicemembers Civil Relief Act protected a spouse present in Virginia solely to accompany a service member under orders only when both had the same domicile.

The taxpayer moved to Virginia in 2008, bought a home, later surrendered the other-state driver's license for a Virginia license, registered vehicles in Virginia, used a Virginia residence on federal returns, and had Virginia tax withheld from wages. She supplied no evidence of continuing contacts with the service member's home state.

A spouse could not simply elect the service member's domicile. She had to show that she had lived in the other state intending it as a permanent home and had not abandoned that domicile. Licenses, voting, vehicle registration, and other state benefits or obligations were relevant evidence.

The Commissioner nevertheless allowed one final opportunity to submit a domicile questionnaire and supporting documents within 30 days. The assessments could then be adjusted as warranted; without the evidence, they would become due.

What this means for you

• Shared domicile must be proved; marriage to a service member is not enough by itself.
• A Virginia home, license, vehicle registrations, address, and withholding can point toward Virginia domicile.
• Preserve affirmative records tying the spouse to the claimed other-state domicile.
• This ruling left the final amount open to adjustment if timely evidence was produced.

Citations and references

• 50 U.S.C. § 571 et seq., as cited in the ruling.
• Virginia Tax Bulletins 9-10 and 10-1.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-80

Original ruling text

May 30, 2014

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the Virginia individual income tax assessments issued to your client, * (the Taxpayer), for the taxable years ended December 31, 2009 and 2010. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is the spouse of a military service member whose home of record

was * (State A). The Taxpayer filed a 2009 Virginia resident income tax return

requesting a full refund of her Virginia withholding. In 2010, the Taxpayer filed a Virginia Special Nonresident Claim for Individual Income Tax Withheld. Under audit, the Department determined that the Taxpayer was a domiciliary resident of Virginia and issued assessments for the previously claimed refunds. The Taxpayer appeals the assessments, contending she was not a resident of Virginia and requests that both assessments be abated.

DETERMINATION

The Service Members Civil Relief Act (the "Act"), codified at 50 U.S.C. § 571 et seq. , provides that military and naval personnel do not abandon their legal domicile solely by complying with military orders that station them in a different state or country whether permanently or temporarily. The Act did not apply to the spouses of military and naval personnel before 2009. The Department has ruled that the residency status of a taxpayer requires analysis separate from their military spouse. See Public Document (P.D.) 05-92 (6/9/2005) and P.D. 05-150 (9/8/2005).

The Act was amended, effective for 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. See Virginia Tax Bulletin (VTB) 9-10 (11/12/2009) and VTB 10-1.

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 spouse cannot simply elect to claim the service member's domicile. In order to claim a domicile in another state, the spouse must have (i) resided in the other state with the intent to make a permanent home there, and (ii) not abandoned that domicile when moving to reside with the service member or for any other reason. 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 spouse maintains sufficient connections with service member's domiciliary state to indicate intent to maintain domicile there. Such connections would include obtaining and retaining 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 the spouse of a military service member maintains such connections, he or she would be considered to be a resident of the other state even though they work, live, and establish a place of abode in Virginia.

In this case, the Taxpayer moved into Virginia in 2008 and purchased a Virginia residence. In 2010, the Taxpayer surrendered her State A driver's license for a Virginia driver's license and registered her motor vehicles in Virginia. The Taxpayer filed 2009 and 2010 federal income tax returns reporting a Virginia residence. The Taxpayer's employer reported Virginia withholding for the Taxpayer for both taxable years at issue.

Although the Taxpayer argues that she has not established domicile in Virginia, she has provided no evidence that she maintained domicile in State A. Absent such proof, the Department must conclude that the Taxpayer intended to establish domicile in Virginia and does not qualify for the protections provided by the Act. As such, the assessments are upheld.

However, I will allow the Taxpayer one final opportunity to provide documents to support her contention of maintaining domicile in State A. I have included a questionnaire to assist you in collecting the required documents. The Taxpayer should provide such evidence within 30 days of the date of this letter.

The information should be mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23218-7203, Attention: *. Once the information is reviewed, the assessments will be adjusted as warranted. If the information is not received, the assessment will become due and payable.

The public documents and tax bulletins cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5224462587.D