Did military-spouse status exempt a taxpayer who had established Virginia domicile before the federal protection changed?

Subject

The Servicemembers Civil Relief Act; Domicile

Plain-English summary

A taxpayer argued that her spouse's military status exempted her from Virginia income tax for 2012. Virginia explained that the federal protection applies when a spouse is present solely because of military orders and shares the service member's out-of-state domicile.

The taxpayer had filed Virginia resident returns before the military-spouse amendment became effective for 2009, apparently had a permanent Virginia home and employment, and obtained a Virginia driver's license in 2009. Because military spouses licensed by their home state were exempt from needing a Virginia license, the Department treated obtaining one as evidence of choosing Virginia domicile.

Once Virginia domicile was established, the taxpayer remained a Virginia domiciliary until she took sufficient steps to abandon it and establish domicile elsewhere. She did not answer the Department's request for documentation showing that she shared the service member's domicile or had abandoned Virginia domicile.

The assessment was therefore upheld on the existing record. The taxpayer had 30 days to file a 2012 Virginia resident return so the best-information assessment could be adjusted; otherwise it would be treated as correct and collection could proceed.

Citations and references

• 50 U.S.C. §§ 3901 et seq. and 4001(a)(2).
• Va. Code §§ 58.1-302, 58.1-205, and 58.1-111.
• Va. Code §§ 46.2-306, 46.2-323.1, and 46.2-348.
• VTB 10-1; P.D. 00-151, 02-149, 05-92, 05-150, 10-32, 11-16, 11-66, and 11-114.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-132

Original ruling text

June 23, 2016

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 “Taxpayer”) for the taxable year ended December 31, 2012.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating the Taxpayer may be required to file a Virginia individual income tax return. The Department requested additional information from the Taxpayer. The Taxpayer responded by claiming she was not required to file a Virginia income tax return. When the Taxpayer failed to provide requested documentation to substantiate her claim, the Department issued an assessment. The Taxpayer appeals the assessment, contending she was exempt from Virginia income tax because her spouse was a military service member.

DETERMINATION

Domicile

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, 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. A Virginia domiciliary resident, therefore, working in other parts of the country or in another country who has not abandoned his Virginia residency continues to be subject to Virginia taxation. Additionally, a person who is not a domiciliary resident of Virginia, but who stays in Virginia for an aggregate of more than 183 days, is also subject to Virginia taxation.

Residency of a Military Spouse

The Servicemembers Civil Relief Act (the “Act”), codified at 50 U.S.C. § 3901 et seq . (formerly 50 U.S.C. § 511 et seq .) was amended, effective for the 2009 taxable year and thereafter, to address the residency of military spouses. Specifically, 50 U.S.C. § 4001(a)(2) (formerly 50 U.S.0 § 571(a)(2)) was enacted 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, as the case may be, is the same for the service member and the spouse.” The Act does not apply to the spouses of military and naval personnel who have established domiciliary status within Virginia. See Public Document (P.D.) 11-114 (6/21/2011). In Virginia Tax Bulletin (VTB) 10-1 (1/29/2010), 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 actions in Virginia that are 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 the 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.

When a spouse moves to follow military personnel to a new duty station, they will generally abandon their former personal property and move the family. The spouse will establish a new permanent place of abode near the new duty station, enroll children in school, and seek employment of an indeterminate duration. The spouse will generally comply with jurisdictional authorities with regard to driving permits, vehicle registrations, voting registrations, and education requirements. The spouse will also change social, charitable and church associations. Moreover, the military service member and the spouse move with no assurance that they may move back to a former duty station.

Under these circumstances, it seems reasonable to conclude that a military spouse will establish domicile in Virginia when following military personnel to Virginia, and abandon Virginia domicile when following them to the next duty station. To do otherwise would require the Department to investigate whether a military spouse had established domicile and abandoned domicile at every duty station prior to coming into Virginia. Further, when a military spouse is determined to have changed their domicile to Virginia prior to 2009, they will continue to be considered to be Virginia domiciliary residents until he or she takes sufficient actions to abandon their Virginia domicile and establish domicile elsewhere. See P.D. 10-32 (4/08/2010), P.D. 11-16 (2/11/2011) and P.D. 11-66 (4/26/2011). Thus, for taxable years prior to 2009, the residency status of an individual requires analysis separate from their service member spouse. See P.D. 05-92 (6/9/2005) and P.D. 05-150 (9/8/2005).

In this case, the Taxpayer filed Virginia income tax returns as a resident prior to 2009. Thus, it would appear the Taxpayer established a permanent place of abode and was employed in Virginia prior to 2009. In addition the Taxpayer applied for and received a Virginia driver's license in 2009. Such facts would support a finding that the Taxpayer established domicile in Virginia prior to the 2009 amendments to the Act.

With regard to the Virginia driver's license, Va. Code § 46.2-323.1 states, “No driver's license ... shall be issued to any person who is not a Virginia resident.” In fact, this section states that every person applying for a driver's license must execute and furnish to the Commissioner of the Department of Motor Vehicles (DMV) a statement that certifies that the applicant is a Virginia resident. Any applicant who knowingly makes a false statement to DMV is subject to penalties under Va. Code § 46.2-348. The Department has found that an individual may successfully establish a domicile outside Virginia even if he/she retains a Virginia driver's license. The Department has found that an individual may successfully establish a domicile outside Virginia even if he retains a Virginia driver's license. See 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 (12/9/2002).

In addition, Va. Code § 46.2-306 specifically exempts service members on active duty, their spouses, and dependent children residing in Virginia from the requirement to obtain a Virginia driver's license when such individuals have been licensed as drivers under the laws of their home state. Accordingly, when a spouse of a military service member obtains a Virginia's driver's license, the Department considers the action to be an indication of an intent to change one's domicile. In this case, the Taxpayer obtained a Virginia driver's license in 2009.

By letter dated February 2, 2016, the Department requested specific documentation as evidence that the Taxpayer maintained the same domiciliary status as the service member. As of the date of this letter, no response has been received.

Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct”. As such, the burden of proof is on the Taxpayers to show they were not subject to income tax in Virginia. Because the Taxpayer has not provided sufficient documentation to support her claim, the Department's assessment must be upheld.

The assessment at issue was made based on the best information available to the Department pursuant to Va. Code § 58.1-111. The Taxpayer may have information that better represents her Virginia income tax liability for the year at issue. Therefore, the Taxpayer should file a 2012 Virginia individual income tax return as a resident. The return should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *. Upon receipt, the information will be reviewed and assessment will be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be considered to be correct and collection actions may result.

The Code of Virginia sections and public documents 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/1-6237645621D