Did living abroad and filing a prior part-year return prove that this taxpayer was no longer domiciled in Virginia in 2013?

Subject

The burden of proof is on the Taxpayer to show he was not subject to income tax in Virginia.

Plain-English summary

An individual who had previously lived in Virginia moved briefly to another state and then to a foreign country. For 2013 he had tax information sent to a Virginia address and retained his Virginia driver's license. He argued that his move, foreign residence, and 2012 part-year returns proved he had abandoned Virginia domicile.

The Department said those facts were not enough by themselves. A domicile change required both abandonment of Virginia and acquisition of a new permanent or indefinite domicile, judged from all relevant circumstances. The taxpayer's continuing Virginia connections raised unresolved questions, and he did not answer the Department's request for more information.

Because an assessment is presumed correct under Va. Code § 58.1-205, the taxpayer had the burden to show he was not subject to Virginia tax. The Department gave him one final 90-day opportunity to document his domicile or file a 2013 Virginia resident return. Without a response, the assessment would remain correct as issued and collection could follow.

What this means for you

Living outside Virginia, even abroad for most of the year, does not alone prove a domicile change. Taxpayers challenging an assessment need evidence of both leaving Virginia permanently and establishing a new domicile, and failure to answer an information request can leave a best-information assessment in place.

Citations and references

• Va. Code §§ 58.1-302, 58.1-205, 58.1-1826, 58.1-111, and 46.2-323.1.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-26

Original ruling text

March 17, 2017

Re: § 58.1-1821 Appeal: 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, 2013.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia individual income tax return for the 2013 taxable year. A review of the Department's records showed that the Taxpayer had not filed a return. The Department requested additional information from the Taxpayer to determine if his income was subject to Virginia individual income tax. When the Taxpayer did not respond to the information request, the Department issued an assessment. The Taxpayer appeals, contending he was a resident of * (Country A).

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 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, situs of real or 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 abandoned his or her Virginia domicile. If the information is inadequate to meet this burden, the Department must conclude that he or she intended to remain indefinitely in Virginia.

In this case, the Taxpayer explains that he began residing in Country A in December 2012, after he briefly lived in * (State A) that year. The Taxpayer was a resident of Virginia prior to that. The Taxpayer states that neither he nor his wife owned real property or motor vehicles in Virginia in 2013. The Taxpayer, however, had tax information returns sent to a Virginia address. The Taxpayer also retained his 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.” 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. The Department has found that an individual may successfully establish a domicile outside Virginia even if he retains 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 (12/9/2002).

The Taxpayer resided in State A for a brief time in 2012, prior to departing the United States for Country A later that year. The Taxpayer filed part-year Virginia and State A income tax returns for the 2012 taxable year. The Taxpayer contends that moving to State A and paying income taxes there proves he abandoned his Virginia domicile. A determination of domiciliary residency, however, requires an examination of a number of relevant factors. While the fact that the Taxpayer filed part-year resident returns in Virginia and State A in 2012 is evidence that he moved to State A from Virginia that year, it is not determinative of the question whether he abandoned his Virginia domicile or established domicile in State A. Furthermore, although the Taxpayer has spent the majority of his time in Country A since the end of 2012, physical presence in another state or country is not determinative of the elements required for a domicile change either.

In this case, the Taxpayer's ongoing connections with Virginia raise the possibility that he failed to abandon his Virginia domicile and thus did not complete his change of domicile to Country A. By electronic mail dated November 17, 2016, the Department requested additional information from the Taxpayer in order to make a more complete evaluation of all of the relevant domicile factors. To date, the Taxpayer has failed to respond to the Department's information request.

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 Taxpayer to show he was not subject to income tax in Virginia. Furthermore, Va. Code § 58.1­-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the erroneous assessment is attributable to the taxpayers' willful failure or refusal to provide the Department with necessary information as required by law.

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 his Virginia income tax liability for the year at issue. Therefore, the Taxpayer will be granted one last opportunity to provide adequate documentation with regard to his domiciliary status or file a 2013 Virginia resident tax return. The documentation should be submitted within 90 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 documentation will be reviewed and the assessment will be adjusted, as appropriate. If the documentation is not received within the allotted time, the assessment will be considered to be correct as issued 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 and 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/1015.M