Could a merchant mariner exclude 2012 wages from Virginia tax without proving domicile in another state?

Subject

Taxpayers have provided no evidence that the husband was a domiciliary resident of any other state

Plain-English summary

A married couple filed a 2012 part-year Virginia return and excluded the husband's merchant-marine income. Virginia converted the return to full-year resident status.

The husband worked outside Virginia for much of the year but retained a permanent Virginia home where his wife lived, Virginia-registered vehicles, a Virginia driver's license for return visits, and other long-standing domicile ties. The couple supplied no evidence that he acquired a permanent domicile in another state or intended to abandon Virginia.

Federal maritime law protected multistate vessel crew from income tax by a state other than their state of residence. It did not exempt the husband's income from Virginia when Virginia remained his domicile.

Reliance on a professional preparer did not shift responsibility for an accurate return. Virginia upheld the full-year assessment.

Citations and references

• Va. Code § 58.1-302.
• 46 U.S.C. § 11108(b)(2)(B), as cited in the ruling.
• P.D. 11-82 and P.D. 12-93.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-169

Original ruling text

August 29, 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 assessments issued to (the “Taxpayers”) for the taxable year ended December 31, 2012.

FACTS

The Taxpayers, a husband and wife, filed a Virginia part-year resident individual income tax return for the 2012 taxable year. While the wife's income was attributable entirely to Virginia, the income earned by the husband as a merchant marine was excluded. Under audit, the Department changed the Taxpayers' return type to a full-year resident return, recalculated the Taxpayers' Virginia taxable income and issued an assessment for additional tax and interest. The Taxpayers appeal the assessment, contending that the return was prepared by professional tax preparer.

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 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. 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.

In order to change from one legal domicile to another legal domicile, there must be (1) actual abandonment of the old domicile, coupled with an intent not to return to it, and (2) an acquisition of a new domicile at another place, which must be formed by personal presence and an intent to remain there permanently or indefinitely. The burden of proving that the domicile has been changed lies with the person alleging the change.

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 the facts and circumstances of the particular case. A simple declaration is not sufficient to establish residency.

The Department determines a taxpayer's intent through the information provided. A taxpayer has the burden of proving that he or she has abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Tax Commissioner must conclude that he or she intended to remain indefinitely in Virginia.

While the husband lived and worked outside of Virginia for a significant portion of the year, he maintained significant connections within Virginia. The husband maintained a permanent place of abode where the wife continued to be a permanent resident. He registered motor vehicles and continued other domiciliary factors within Virginia for a number of years before the taxable year at issue. For example, the Taxpayers acknowledge that the husband retained his Virginia driver's license for use when he would return to Virginia. As indicated above, in order for the husband to have established domicile outside of Virginia, there must be personal presence with the intent to remain there permanently or indefinitely.

Further, in considering employment as it relates to an individual's domicile, the Department has held that a taxpayer that takes sufficient actions to abandon his Virginia domicile can be considered to have established a new domicile even though he was temporarily employed for a definite period of time. In this case, no evidence has been presented to show that the husband intended to abandon his Virginia domicile permanently.

Under 46 U.S.C. § 11108 (b)(2)(B), an individual “who performs regularly assigned duties while engaged as a master, officer, or crewman on a vessel operating on the navigable waters of more than one State” is not subject to the income tax laws of a state other than the state in which the individual resides. The Taxpayers have provided no evidence that the husband was a domiciliary resident of any other state during 2012.

Professional Tax Preparation

The Taxpayers contend that their 2012 Virginia return was accurate because it was prepared by a professional tax preparer. Under the circumstances, a taxpayer's reliance on an accountant to prepare income tax returns, while understandable, does not relieve the taxpayer of the responsibility for ensuring that the return is filed and the information reported on the return is accurate. See Public Document (P.D.) 11-82 (05/31/11) and P.D. 12-93 (6/8/2012). Further, in a situation where a taxpayer relies on an accountant, lawyer, tax preparer or other tax professional and such professional provides inaccurate or erroneous advice that results in a liability, the taxpayer has recourse against the tax professional for the error.

CONCLUSION

Based on the foregoing, the assessment is upheld, and an updated bill will be issued. The Taxpayers should remit payment for the outstanding balance as shown on the revised bill within 30 days from the date of the revised bill to avoid the accrual of additional interest.

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

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AR/1-6316304202.B