If I temporarily moved to California for work and paid California tax, do I still owe Virginia income tax as a domiciliary resident, and can I claim a credit for the California tax?

Plain-English summary

The Virginia Tax Commissioner ruled that a taxpayer who moved to California for employment in 2016 and lived there for nine months remained a Virginia domiciliary resident for that year, meaning his income stayed subject to Virginia income tax and the Department's assessment against him was upheld.

The taxpayer had been a Virginia resident before 2016. He got a Virginia driver's license in 2013 and still held it, owned a home in Virginia, and returned to that Virginia home in 2017. Under Virginia Code § 58.1-302, a domiciliary resident is someone whose permanent home is Virginia and who intends to return there, even if they are physically living elsewhere. To change domicile, a person must both abandon the old domicile with no intent to return and acquire a new one with intent to remain there permanently or indefinitely. The Commissioner found the taxpayer's facts -- a still-active Virginia license, continued home ownership, and a return to Virginia the following year -- did not show he had abandoned Virginia, so he never stopped being a Virginia domiciliary resident, regardless of spending nine months in California.

That did not leave the taxpayer taxed twice with no relief, however. Virginia Code § 58.1-332 A normally denies Virginia residents a credit for taxes paid to a state (like California) that itself gives a reciprocal credit to Virginia residents on their nonresident returns. But here, because the taxpayer had spent more than nine months in California, California's own law (Cal. Rev. & Tax. Code § 17016) treated him as a California resident, not a nonresident -- so California would not have let him claim a credit for tax paid to Virginia. Because that reciprocal credit was unavailable to him under California law, the Commissioner ruled he could still claim a credit on his Virginia return for the tax he paid to California, once he filed the required Virginia return.

What this means for you

People who work temporarily out of state

Moving to another state for a job -- even for most of a year -- does not by itself change your Virginia domicile. Virginia will keep taxing you as a resident unless you affirmatively abandon Virginia (with no intent to return) and establish a new permanent home elsewhere. Keeping a Virginia driver's license, continuing to own a Virginia home, and moving back afterward are all strong signals that you never left your Virginia domicile, even if you lived and worked in another state for many months.

Taxpayers who paid tax to another state and got a Virginia assessment

If the Department assesses you as a Virginia resident for a year you spent mostly in another state, don't assume you'll be taxed twice with no relief. The credit for tax paid to another state under § 58.1-332 A can still be available if the other state's own residency rules prevented you from claiming a reciprocal credit there -- as happened here, where California treated the taxpayer as its own resident once he passed the nine-month mark. You generally still need to file the required Virginia return (here, within 60 days of the ruling letter) for the Department to apply that credit and recompute the assessment.

Accountants and tax professionals

This ruling illustrates the two-part domicile test (actual abandonment of the old domicile plus acquisition of a new one, both requiring intent) and how the Department weighs objective facts like license retention, home ownership, and a return to the state -- consistent with 23 VAC 10-110-30 B 3. It also shows the interaction between § 58.1-332 A's anti-double-credit rule and a state like California that conditions its own nonresident credit on the other taxpayer's residency status: when the taxpayer becomes a resident of the other state under that state's law (here, via California's nine-month presumption), the usual bar on claiming the Virginia credit does not apply.

Employers relocating staff to other states

If an employee is sent to work in another state for an extended but not permanent assignment, expect Virginia to keep treating them as a resident for withholding and filing purposes unless they have truly relocated with no intent to return. Advise employees who may trigger residency in the other state (as California's nine-month rule did here) that they may still be entitled to a credit on their Virginia return for tax paid there.

Common questions

Q: If I live and work in another state for nine months, am I no longer a Virginia resident?
A: Not automatically. Virginia domicile is based on intent and objective facts, not just time spent elsewhere. In this ruling, the taxpayer's continued Virginia driver's license, home ownership, and return to Virginia the next year showed he had not abandoned his Virginia domicile, so he stayed a domiciliary resident despite nine months in California.

Q: Can I get double-taxed if both Virginia and another state treat me as their resident?
A: Not necessarily. Virginia Code § 58.1-332 A normally blocks the credit only when the other state would let you claim a credit for Virginia tax on your nonresident return there. If the other state's law instead treats you as its own resident (as California did here once the taxpayer passed nine months), that reciprocal credit isn't available to you, so the Virginia credit for tax paid to that state remains open to you.

Q: What did the taxpayer have to do after this ruling?
A: File a 2016 Virginia resident income tax return (within 60 days of the letter) showing his actual Virginia tax liability, including the credit for tax paid to California if applicable, so the Department could review and adjust the assessment.

Q: What happens if the taxpayer doesn't file that return?
A: The letter states that if the return is not received within the allotted time, the assessment may be adjusted based on the information already available to the Department, and collection action may resume.

Q: Does keeping a driver's license in your old state automatically make you a resident there?
A: It's not automatic by itself, but the Commissioner treated it as one of several facts supporting a finding of continued domicile, along with continued home ownership and returning to the state afterward. Domicile is judged on the totality of a person's intent and circumstances.

Citations and references

• § 58.1-302, Code of Virginia (definitions of domiciliary and actual resident)
• § 58.1-332 A, Code of Virginia (credit for tax paid to another state)
• § 58.1-111, Code of Virginia (assessment based on best information available)
• 23 VAC 10-110-30 B 3 (domicile not lost merely by living elsewhere)
• Cal. Rev. & Tax. Code § 17016 (presumption of California residency after nine months)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-165

Original ruling text

September 15, 2020

Re: § 58.1 1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek the correction of an 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 indicating that the Taxpayer may have been required to file a Virginia income tax return for the 2016 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 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 resided in, and paid income tax to California in 2016.

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.

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 has 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.

The Taxpayer contends that he moved to California for employment in 2016. He resided in that state for nine months and filed a 2016 California return attributing all of his income to California. Prior to 2016, the Taxpayer was a Virginia resident. He obtained a Virginia license in 2013, which he continues to hold. In addition, the Taxpayer owned a home in Virginia to which he returned in 2017.

Most domiciliary residents actually live in Virginia. However, actual presence in the state is not required. Any person who has not moved from the state with the intention of permanently residing outside of Virginia is still a domiciliary resident even though he may be actually living someplace else. See Title 23 of the Virginia Administrative Code (VAC) 10-110-30 B 3.

Credit for Tax Paid to another State

Virginia Code § 58.1 332 A allows Virginia residents a credit on their Virginia return for income taxes paid to another state provided the income is either earned or business income. Further, this section states:

The credit . . . shall not be granted to a resident individual when the laws of another state, under which the income in question is subject to tax assessment, provide a credit to such resident individual substantially similar to that granted by . . . this section.

As a general rule, Virginia law does not allow a resident to claim a credit on his Virginia return for taxes paid to California because California law allows a Virginia resident to claim the credit on his California nonresident return. Similarly, a California resident would claim the credit for tax paid to California on his Virginia nonresident return.

Pursuant to Cal. Rev. § 17016, any individual who spends more than nine months in California is presumed to be a California resident. The documentation provided by the Taxpayer indicates he spent more than nine months in California in 2016. Because of the length of time spent in California, the Taxpayer was subject to tax as a resident of California. At the same time, he maintained his Virginia domicile.

The Department has determined that when California law does not permit a taxpayer to claim a credit for taxes paid to Virginia because of his residency status, the Taxpayer would be allowed to claim the credit on the Virginia resident individual income tax return. See Public Document (P.D.) 97-98 (2/24/1998) and P.D. 03-21 (3/20/2003). In the instant case, California law did not permit the Taxpayer to claim a credit on his individual income tax return for taxes paid to Virginia because the Taxpayer was regarded as a California resident.

CONCLUSION

Because he resided temporarily in California, the Taxpayer continued to be a domiciliary resident of Virginia for in 2016. As such, the Taxpayer’s income was subject to Virginia income tax, and the Department was correct in issuing an assessment.

The assessment at issue was based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer, however, may have information that better represents his Virginia income tax liability for the taxable year at issue, including a credit for tax paid to California, if applicable. Therefore, the Taxpayer is requested to file a 2016 Virginia resident income tax return. The return should be submitted within 60 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: *. The return will reviewed and processed, and the assessment will be adjusted as warranted. If the return is not received within the allotted time, the assessment may be adjusted based on the information provided and collection action may 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/3378.B

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