Could spouses file a joint Virginia resident return while subtracting all income of the nonresident service member?

Plain-English summary

The resident husband and nonresident active-duty wife filed jointly as Virginia residents but subtracted the wife's income. Virginia held that the joint election required both spouses to be treated as residents, so the subtraction was disallowed.

The couple could instead amend to separate returns reflecting the wife's nonresident status and allocating income, deductions, and exemptions under the separate-accounting rules.

Citations and references

• Va. Code §§ 58.1-326 and 58.1-324
• 23 VAC 10-110-190 B

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-37

Original ruling text

March 29, 2018

Re: § 58.1-1821 Appeal: Individual Income Tax

Dear *:

This will respond to your letter in which you seek correction of the individual income tax assessment issued to * (the “Taxpayers”) for the taxable year ended December 31, 2016. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayers, a husband and wife, resided in Virginia. The wife, an active duty m ilitary member, maintained domicile in * (State A) pursuant the Servicemembers Civil Relief Act (the “Act”). The husband established residency in Virginia. For the 2016 taxable year, the Taxpayers filed a Virginia resident individual income tax return (Form 760) as married filing jointly and subtracted the income of the military spouse. The Department disallowed the subtraction and assessed additional tax and interest. The Taxpayers appeal the assessment, asserting that the military spouse's income should not be subject to Virginia individual income taxation.

DETERMINATION

Domicile

Two classes of residents, a domiciliary resident and an actual resident are set forth in Virginia 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.

Residency of a Military Service Member

The Act, codified at 50 U.S.C. § 3901 et seq. , provides that military personnel do not abandon their legal domicile solely by complying with military orders that require them to take residence in a different state or country. The Act, however, does not preclude the possibility that armed forces personnel may acquire a new legal domicile in the state where they are stationed, and thus subject themselves to taxation by that state as if they were a domiciliary resident. In order for the change of domicile to occur, there must be an abandonment of the old domicile and the acquisition of a new one. This change must be exhibited by an individual's intent and conduct. See United States of America v. Minnesota Department of Revenue , 97 F. Supp. 2d 973 (2000) ( Minnesota ).

In general, the Department will not seek to tax an active duty military service member so long as the member maintains sufficient connections with another state to indicate intent to maintain domicile there. Such connections would include filing a State of Legal Residence Certificate (Department of Defense Form 2058), obtaining 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 a military service member maintains such connections, they would be considered to be a resident of the other state even though they work, live, and establish a permanent place of abode in Virginia. See Public Document (P.D.) 10-237 (9/30/2010).

Under the circumstances presented in this appeal, it appears that the military service member maintained sufficient connections with State A to retain domicile there. The military service member maintained a State A driver's license, and continued to list State A on her residency documents, such as her federal income tax withholding form. Additionally, she never established sufficient connections, such as registering to vote, with Virginia to establish a new domicile.

Virginia income taxation of nonresident/resident spouses

Virginia Code § 58.1-326 states “if husband or wife is a resident and the other is a nonresident, separate taxes shall be determined on their separate Virginia taxable incomes on such single or separate forms as may be required by the Department, unless both elect to determine their joint Virginia taxable income as if both were residents.” Accordingly, the Taxpayers, one being a Virginia resident and the other a nonresident, had the option to either exclude the nonresident spouse's income by filing their taxes separately, or in the alternative, subjecting both spouses' income to Virginia individual income taxation by filing a joint return.

CONCLUSION

Based on the information provided, the wife was not a resident of Virginia during 2016. Because the Taxpayers filed a joint Virginia resident return, however, the Department was correct in assessing their income tax liability as if both spouses were residents in accordance with Virginia Code § 58.1-326.

If the Taxpayers still wish to exclude the nonresident spouse's income from Virginia individual income tax liability, they should file an amended return for the 2016 taxable year. The Taxpayers should note that any reassessment and refund upon the filing of an amended return or the payment of an assessment is governed by Virginia Code § 58.1­-1823 and is subject to time limitations. The resident spouse should file a separate return (Form 760), while the nonresident spouse should file as a nonresident (Form 763), if applicable.

The Taxpayers' amended returns should be submitted to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *, within 30 days from the date of this letter. Once the returns are received, they will be processed and the assessment adjusted accordingly. If the amended returns are not received within the allotted 30-day period, the Department's assessment will be considered to be correct as issued.

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. The forms and instructions cited are also available in the Forms and Filing section of the Department's website. 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/1297.C