What does Virginia Ruling of the Tax Commissioner P.D. 20-181 conclude about Residency : Domicile - Change, Part-year?

Plain-English summary

This ruling addresses a taxpayer who moved between Virginia and another state ("State A") more than once and disputed a Virginia income tax assessment for the 2017 taxable year. The Department had assessed him based on IRS information suggesting he owed Virginia tax, but he had not filed a 2017 Virginia return and argued he was a State A resident that year.

The taxpayer's history: he moved from State A to Virginia in June 2011 for a new job and got a Virginia driver's license in December 2011 (while keeping his State A license). He moved back to State A at the end of 2015. Then, in October 2017, he registered a vehicle and leased a residence in Virginia; his State A employment ended in November 2017. He said he leased the Virginia residence only to search for new work and spent just a few days in Virginia during October–November 2017. He later renewed his Virginia driver's license in July 2019.

The Tax Commissioner applied Virginia's two-part residency test under Va. Code § 58.1-302: domiciliary residency (permanent home, intent to return) and actual residency (183+ days physically present). Changing domicile requires both actually abandoning the old domicile with no intent to return, and establishing a new one through physical presence plus intent to remain permanently or indefinitely — and the taxpayer bears the burden of proving abandonment. The Commissioner found the taxpayer did successfully abandon Virginia domicile and become a State A resident in 2015. However, the Commissioner also found that by leasing a residence and registering a vehicle in Virginia in October 2017 — before his State A job even ended — the taxpayer took "significant steps" to re-establish Virginia domicile, treating that change as part of a process that began at that point even though other formal steps (like renewing his driver's license) came later.

Because he re-established Virginia domicile in October 2017, the taxpayer was a part-year Virginia resident from October through December 2017 under Va. Code § 58.1-303. The Department ordered him to file a 2017 Virginia part-year resident return reporting only the income attributable to that period, after which the assessment would be adjusted; if no return was filed within 60 days, the original assessment would stand and collection could resume.

What this means for you

People who move into or out of Virginia mid-year

If you relocate to Virginia and take concrete steps like leasing a home or registering a vehicle here — even if you say your intent was temporary (e.g., job-hunting) — the Department may treat that as the start of a new Virginia domicile. The date you take those steps, not the date you formalize things like a driver's license, can become the start of your part-year residency. You are taxed only on income attributable to the part of the year you were a Virginia resident, but you must file a part-year resident return to get that treatment — the Department otherwise defaults to your full-year assessment.

People with driver's licenses in two states

This ruling confirms that keeping (or even renewing) a Virginia driver's license does not automatically make you a Virginia domiciliary, and conversely, you can establish Virginia domicile even before you update your license. Va. Code § 46.2-323.1 requires certifying Virginia residency to get a Virginia license, so renewing one is a "strong indicator" of intent to remain a Virginia domiciliary, but it is only one factor among many (employment, real property, vehicle registration, spouse's residence, etc.).

Accountants and tax professionals

When a client has a documented departure from Virginia followed by a later return, evaluate the domicile-change facts for each direction separately rather than assuming one determination covers the whole period. Watch for the Department's "process" doctrine: it dates a domicile change to when the taxpayer's actions substantively point at a new home, not merely when official records (license, registration) catch up. Advise clients who take a Virginia lease or vehicle registration, even for a stated temporary purpose, that this can be read as re-establishing domicile, and make sure a part-year return is filed as directed to avoid the full-year assessment standing by default.

Common questions

Q: Did the taxpayer win or lose this appeal?
A: Mixed outcome. The Commissioner agreed the taxpayer had abandoned Virginia domicile in 2015 and was not a full-year Virginia resident in 2017, but found he re-established Virginia domicile in October 2017, making him liable for Virginia tax as a part-year resident for the last three months of 2017 rather than for the full year.

Q: What made the Department conclude domicile was re-established in October 2017 specifically?
A: The taxpayer registered a vehicle and leased a residence in Virginia in October 2017, before his State A employment even ended in November 2017. The Department treats a domicile change as part of a process that starts when such substantive steps are taken, even if other formal indicators (like renewing a driver's license, which didn't happen until July 2019) come later.

Q: Does keeping or renewing a Virginia driver's license by itself prove Virginia domicile?
A: Not by itself, but it is a strong indicator. The ruling notes a taxpayer can successfully establish domicile outside Virginia even while retaining a Virginia license, but obtaining or renewing one is still weighed heavily as evidence of intent to remain a Virginia domiciliary.

Q: What was the taxpayer required to do after this ruling?
A: File a 2017 Virginia part-year resident return within 60 days of the letter, reporting only income attributable to his Virginia residency period (October–December 2017), with prorated exemptions and standard deduction. If he failed to file, the original full assessment would be considered correct and collection could resume.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1821 (application for correction of assessment)
• Va. Code § 58.1-302 (domiciliary resident and actual resident defined)
• Va. Code § 58.1-205 (taxpayer's burden of proving domicile change)
• Va. Code § 46.2-323.1 (driver's license requires Virginia residency certification)
• Va. Code § 58.1-301 (Virginia conformity to the Internal Revenue Code)
• Va. Code §§ 58.1-322.01 through 58.1-322.04 (Virginia modifications to federal AGI)
• Va. Code § 58.1-303 (part-year residents; proration of exemptions and deductions)
• 23 VAC 10-110-40 B (income attributable to Virginia for part-year residents)

Related Public Documents cited in the ruling:

• P.D. 00-151 (8/18/2000) — domicile can be established outside Virginia despite retaining a VA license
• P.D. 02-149 (12/9/2002) — renewing a VA license is a strong indicator of intent to retain VA domicile
• P.D. 16-138 (6/24/2016) and P.D. 19-19 (3/26/2019) — domicile change dated to the start of the process, not later formal steps

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-181

Original ruling text

October 13, 2020

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessments issued to * (the “Taxpayer”) for the taxable year ended December 31, 2017.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may have been required to file a Virginia income tax return for the 2017 taxable year. A review of the Department’s records showed that the Taxpayer had not filed a return for the taxable year at issue. The Department requested additional information from the Taxpayer in order to determine if his income was taxable in Virginia. After reviewing the information provided, the Department issued an assessment against the Taxpayer for the 2017 taxable year. The Taxpayer appeals, contending he was a resident of * (State A) in 2017.

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. See Virginia Code § 58.1-205. 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 moved from State A to Virginia in June 2011 upon accepting new employment. He obtained a Virginia driver’s license in December 2011, but still maintained his State A driver’s license. The Taxpayer returned to and began residing in State A at the end of 2015. In October 2017, the Taxpayer registered a vehicle and leased a residence in Virginia. He renewed his Virginia driver’s license in July 2019.

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).

His employment in State A was terminated in November 2017. The Taxpayer states in his correspondence that he obtained the Virginia residence in order to search for new employment. He indicates that he only spent a few days in Virginia during the October through November 2017 time period.

Part-Year Residents

Virginia’s conformity to federal income tax law is set forth in Virginia Code § 58.1-301, which provides that the terms used in the Virginia income tax statutes will have the same meaning as used in the Internal Revenue Code (IRC). Further, conformity does not extend to terms, concepts, or principles specifically provided for in Title 58.1 of the Code of Virginia . For individual income tax purposes, Virginia conforms to federal law in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Virginia Code §§ 58.1-322.01 through 58.1-322.04. There is no exemption for income earned while residing in a foreign country.

Virginia Code § 58.1-303 provides that a taxpayer from another state or country who becomes a Virginia resident during the taxable year is subject to taxation for the period in which they were a Virginia resident. Accordingly, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. In addition, part-year residents may claim a portion of their Virginia personal exemptions, but the exemptions will be prorated based upon the number of days that the taxpayer was a Virginia resident. Further, part-year residents may claim a prorated Virginia standard deduction if they claim the standard deduction for federal income tax purposes.

Pursuant to Virginia Code § 58.1-303, part-year residents are subject to tax only on their income that is attributable to Virginia. Title 23 of the Virginia Administrative Code (VAC) 10-110-40 B specifically defines income attributable to Virginia as “that which is received during the portion of the year in which the individual is a Virginia resident.” Taxpayers that are part-year Virginia residents are required to file Virginia part-year income tax returns if they have taxable income earned while they resided in the Commonwealth.

CONCLUSION

The Taxpayer indicates that he obtained the Virginia residence in October 2017 in order to seek new employment. He contends that he should not be liable for any Virginia income tax for the 2017 taxable year because he spent very few days in the Commonwealth during 2017.

The Department considers a change of domicile to be part of a process and the change is generally considered to have occurred at the beginning of that process even when official connections such as driver's licenses, vehicle registrations and voter’s registrations were not obtained until later. See P.D. 16-138 (6/24/2016) and P.D. 19-19 (3/26/2019). In this case, the Taxpayer registered a vehicle and leased a residence in Virginia prior to the termination of his employment in State A.

While the Taxpayer retained some connections with Virginia, I find that the he successfully ended his Virginia residence and began residing in State A in 2015. I also find, however, that the Taxpayer took significant steps to reestablish his Virginia domicile in October 2017.

Because the Taxpayer changed his domiciliary residence to Virginia, he would be considered a part-year resident under Virginia law from October 2017 through the end of the year. As such, the Taxpayer must file a 2017 Virginia part-year resident return with the Department within 60 days from the date of this letter. Please send the return to the Virginia Department of Taxation, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia, 232261-7203, Attn: *. Once the part-year return has been filed, it will be processed and the assessment will be adjusted accordingly. If the return is not filed, the assessment will be considered to be correct and collection action may resume.

The Code of Virginia sections and public document 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/3426.B

Related Documents

00-151

02-149

16-138

19-19