If a person is not a Virginia resident but works part of the week in Virginia, does he still owe Virginia income tax on his Virginia earnings?

Plain-English summary

The IRS told Virginia the taxpayer may have needed to file a 2016 Virginia return. When he did not respond to the Department's questionnaire, an assessment issued. He appealed, explaining he was a resident of another state ("State A") who worked only part of the year in Virginia.

The Department found he was a nonresident -- but he still owed Virginia tax on his Virginia earnings.

• He wasn't a Virginia resident. Under Va. Code § 58.1-302, a domiciliary resident stays taxable until he abandons the old domicile and acquires a new one, and an actual resident is someone in Virginia more than 183 days. He commuted in around Monday to a leased temporary residence and returned to his permanent State A home by Thursday, spent fewer than 183 days in Virginia, and kept his State A driver's license and vehicle registration. So he was neither a domiciliary nor an actual resident.
• But Virginia-source income is still taxed. Under Va. Code § 58.1-325, a person who is neither a domiciliary nor actual resident but has income from Virginia sources is taxed as a nonresident. Va. Code § 58.1-302 limits "Virginia source income" to items such as income from a business, trade, profession, or occupation carried on in Virginia -- which covers his Virginia work. A nonresident computes Virginia tax by prorating a resident-basis tax by the ratio of Virginia-source income to income from all sources.
• He must file a nonresident return. Under Va. Code § 58.1-341, a nonresident with Virginia-source income must file a nonresident return unless a filing exception applies. Because the assessment is prima facie correct under Va. Code § 58.1-205 and was based on the best information available (§ 58.1-111), he was given 30 days to file the proper return with documentation so the assessment could be adjusted.

What this means for you

"I'm not a resident" doesn't end the Virginia question. Even if you keep your home, license, and registration in another state and stay under 183 days, Virginia taxes the income you earn from work carried on in Virginia -- as a nonresident.

File the nonresident return. The remedy here isn't to argue residency; it's to file a Virginia nonresident return reporting the Virginia-source portion of your income. Doing so lets the Department replace an estimated assessment with your actual, apportioned liability.

Respond before the assessment locks in. The taxpayer's failure to answer led to an estimated assessment that is presumed correct. Use the 30-day window to file and document.

Common questions

Q: I only worked in Virginia a few days a week -- do I really owe Virginia tax?

A: Yes, on the income from that Virginia work. A nonresident is taxed on Virginia-source income, including income from an occupation carried on in Virginia, even without crossing the 183-day residency line.

Q: Am I a Virginia resident if I lease a place there during the week?

A: Not on these facts -- he kept his permanent home, license, and registration in State A and stayed under 183 days, so he was a nonresident, not an actual resident.

Q: How do I fix an estimated assessment?

A: File the Virginia nonresident return for the year with supporting documentation within 30 days; the Department will process it and adjust the assessment to your apportioned Virginia-source liability.

Citations and references

• Va. Code § 58.1-302 -- defines residents and limits "income from Virginia sources" (including a business, trade, profession, or occupation carried on in Virginia)
• Va. Code § 58.1-325 -- taxes nonresidents on Virginia-source income by apportionment
• Va. Code § 58.1-341 -- requires a nonresident with Virginia-source income to file a nonresident return unless an exception applies
• Va. Code § 58.1-321 -- the filing-threshold exception referenced in the determination
• Va. Code § 58.1-205 -- an assessment by the Department is deemed prima facie correct
• Va. Code § 58.1-111 -- authorizes assessment on the best information available

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 19-106

Original ruling text

September 18, 2019

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond 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, 2016.

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 2016 taxable year. Because no return was on file, the Department requested additional information in order to determine if his income was taxable in Virginia. When a response was not received, the Department issued an assessment. The Taxpayer appeals, contending he was a resident of * (“State A”) and worked only part of the year in Virginia.

DETERMINATION

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. 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. 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.

Prior to issuing the assessment, the Department sent the Taxpayer a notification that federal information had been received indicating he may have been required to file a Virginia income tax return for the 2016 taxable year. A questionnaire was attached to assist the Department in determining whether or not he had a filing requirement. The notification clearly stated that the failure to reply would result in an assessment being issued. When the Taxpayer failed to respond, the Department issued an assessment based on the best information available as authorized under to Virginia Code § 58.1-111.

The Taxpayer explains that in 2015 he was hired to work in Virginia a few days per week, and he initially lived in Virginia only part-time. He states that in 2016 he would typically travel to Virginia, where he leased a temporary residence, on Monday, and would return to State A, where he owned a permanent home, on Thursday nights. The information provided indicates the Taxpayer was in Virginia less than 183 days in 2016. He also maintained his State A driver’s license and State A vehicle registration. The Taxpayer asserts that the assessment at issue is improper because he had not yet permanently relocated to Virginia.

While it appears that the Taxpayer may not have taken the necessary steps to abandon his State A domicile in 2016, according to the information provided it appears the Taxpayer had Virginia source income subject to Virginia income tax in 2016. Individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents, unless the individual meets the filing exception described in Virginia Code § 58.1-321. See Virginia Code § 58.1-325. The Virginia taxable income of a nonresident is computed by multiplying his Virginia taxable income (computed as if he were a resident) by the ratio of his net income, gain, loss, and deductions from Virginia sources to his net income, gain, loss, and deductions from all sources. Virginia Code § 58.1-302 limits the term income and deductions from Virginia sources to the items of income, gain, loss, and deductions attributable to (1) the ownership of any interest in real or tangible personal property in Virginia, (2) a business, trade, profession or occupation carried on in Virginia, or (3) prizes paid by the Virginia Lottery Department, and gambling winnings from wagers placed or paid at a location in Virginia. Thus, a nonresident with Virginia source income is required to file a nonresident Virginia income tax return unless the filing exemption applies. See Virginia Code § 58.1-341 A 2.

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 clearly not subject to income tax in Virginia.

The Taxpayer may have information that better represents his Virginia income tax liability and residency status for the taxable year at issue. If so, the Taxpayer should file the appropriate return and provide any required supporting documentation. The Taxpayer should file the appropriate return within 30 days of the date of this letter. Please mail the forms, documents, and payment for the corresponding liability to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attention: *, P.O. Box 27203, Richmond, Virginia 23218-7203. Once a return is received, it will be processed and the assessment will be adjusted accordingly. If the return is not filed within the allotted time, the assessment will be considered correct and collection action will resume.

The Code of Virginia sections 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/2056C