Did foreign work assignments and purchasing property in another state establish a new domicile when the taxpayer returned to Virginia within six months?

Plain-English summary

Virginia found that a taxpayer remained domiciled in the Commonwealth for 2012 and 2013 while working on foreign assignments. Temporary employment abroad, without other convincing acts establishing a new permanent home, did not show abandonment of Virginia domicile.

The taxpayer later bought property in State A, but reported it as rental property and returned to Virginia within six months. Va. Code § 58.1-303 B treated that quick return as prima facie evidence that Virginia domicile was never abandoned.

Key evidence

• DMV records showed a Virginia license extension tied to overseas service, contradicting the claim that the license had lapsed.
• The Virginia employer continued withholding Virginia income tax during the foreign assignments.
• Travel records conflicted, and the State A property was reported as a rental.
• The taxpayer returned to Virginia shortly after the claimed move.

The Department required full-year resident returns for both years and allowed 30 days to replace its best-information assessments with more accurate filings.

Common questions

Does temporary foreign employment change domicile? Not by itself. The taxpayer must abandon Virginia and establish a new domicile through presence and present intent to remain.

Why did the six-month return matter? Virginia law treats a return within six months as evidence that the prior Virginia domicile continued.

Were the assessment amounts fixed? The taxpayer could file accurate resident returns for adjustment.

Citations and references

• Va. Code §§ 58.1-111, 58.1-302, and 58.1-303 B
• Va. Code § 46.2-221.2
• 23 VAC 10-110-30 B 3
• Robert H. Talley v. Commonwealth, 127 Va. 516, 103 S.E. 612 (1920)

Subject

Department finds that the Taxpayer remained domiciled in Virginia for the taxable years.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-72

Original ruling text

May 23, 2017

Re: § 58.1-1821 Application: Individual Income Tax

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, 2014. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer filed Virginia resident individual income tax returns for the taxable years 2003 through 2011. For the 2012 taxable year, the Taxpayer filed a nonresident return claiming no Virginia source income. The Department issued a refund to the Taxpayer. The Taxpayer also filed a 2013 part-year resident return and received a refund. Under audit, the Department determined the Taxpayer was a domiciliary resident of Virginia and issued assessments. The Taxpayer appeals the assessments, contending he was not a resident of Virginia during 2012 and returned to Virginia for a part of the 2013 taxable year.

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 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 residency or domicile.

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.

2012 Taxable Year

The Taxpayer indicates that he had accepted an assignment from his employer in a foreign country and he had no intention of returning to Virginia. It appears he filed a 2012 income tax return with the state of * (State A). No other documentation has been provided to show any other actions consistent with changing his domicile during 2012 has been provided.

Although the Taxpayer asserts he allowed the license to lapse in June 2011, Virginia Department of Motor Vehicle (DMV) records show his driver's license was not set to expire until June 2014. Pursuant to Va. Code § 46.2-221.2, active duty military service members, members of diplomatic services to the United States appointed under the Foreign Service Act of 1946, civilian employees of the United States government or any agency or contractor thereof, serving outside of the United States, may be granted an extension for up to three years in lieu of a Virginia driver's license renewal. Here, DMV records contradict the Taxpayer's claim, appearing to show the Taxpayer was granted an extension based on his overseas assignment.

In addition, the Taxpayer worked for a Virginia business that provided services to the Department of Defense. The Taxpayer received contract assignments to work abroad, but his employer continued to withhold Virginia income tax. The Department has repeatedly ruled that individuals generally lack the intent to abandon their Virginia domicile when they engage in temporary employment outside the Commonwealth. See P.D. 86-219 (11/3/1986), P.D. 94-353 (11/23/1994), P.D. 96-207 (8/26/1996), P.D. 02-­33 (3/13/2002), P.D. 05-8 (2/1/2005), P.D. 10-134 (7/12/2010) and P.D. 16-39 (3/31/2016). The Taxpayer returned to the United States after his temporary assignments in the foreign country.

2013 Taxable Year

The Taxpayer alleges he intended to move to State A when he returned from his foreign assignment. Documents provided also show the Taxpayer purchased real property in State A in February 2013. Multiple travel documents for the overseas assignments were provided showing conflicting departure and return dates. One travel authorization shows the Taxpayer's assignment did not end until July 2013. This assignment period is consistent with the information reported on the Taxpayer's 2013 federal schedule for foreign income exclusion. The schedule shows the Taxpayer resided abroad approximately six months during the 2013 taxable year. He filed a part-year income tax return indicating he moved back to Virginia in August 2013. In addition, a review of the 2013 federal return shows the Taxpayer reported the State A real property as rental property for federal income tax purposes.

According to numerous Virginia court cases, changing domicile is a two-step process. First, a person must intend to permanently move away from one domicile. Second, the person must acquire a new domicile where he intends to remain permanently or indefinitely. See Robert H. Talley v. Commonwealth of Virginia , 127 Va. 516, 103 S.E. 612 (1920), State-Planters Bank, v. Commonwealth of Virginia , 174 Va. 289, 6 S.E.2d 629 (1940), and Barbara B. Woods v. Commonwealth of Virginia . Where a change of domicile has clearly been established through the preponderance of evidence, the Department will generally consider a change to have occurred toward the beginning of the process.

Based on the information provided, it is unclear where the Taxpayer was at any given point of time in 2012 and 2013. Further, under Va. Code § 58.1-303 B, an individual who returns to reside in Virginia within six months after moving to a place of abode outside of Virginia is considered prima facie evidence that the Virginia domicile was never abandoned. See also Title 23 of Virginia Administrative Code (VAC) §10­-110-30 B 3. Thus, even if the Taxpayer intended to move to State A, it appears he returned to Virginia within six months of purchasing the State A place of abode.

After considering all of the relevant documents, facts, and circumstances, the Department finds that the Taxpayer remained domiciled in Virginia for both the 2012 and 2013 taxable years.

The Department's assessment was issued based on information available to the Department pursuant to Va. Code § 58.1-111. The Taxpayer may have additional information that may more accurately reflect his Virginia taxable income. Accordingly, the Taxpayer should file a full year Virginia resident income tax returns for the 2012 and 2013 taxable years. The returns should be submitted within 30 days of the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *. Once the returns are received, they will be processed and the assessments adjusted accordingly. If the returns are not filed within the allotted time, the Department's assessments will be considered to be correct as issued and collection actions will resume.

The Code of Virginia sections, regulation 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/710.D