What does Virginia Ruling of the Tax Commissioner P.D. 20-187 conclude about Residency : Domicile - No Virginia Domicile Established?

Plain-English summary

The Department of Taxation assessed the taxpayer for unpaid 2017 Virginia individual income tax after the IRS flagged that he may have owed Virginia tax, and he had filed no Virginia return that year. The taxpayer appealed under Va. Code § 58.1-1821, arguing he was actually a resident of another state ("State A") for all of 2017.

The Tax Commissioner's ruling walks through Virginia's two-track residency test under Va. Code § 58.1-302: a person is a Virginia domiciliary resident if Virginia is their permanent home and the place they intend to return to, or an actual resident if they maintain a Virginia place of abode for more than 183 days in the year, regardless of domicile. Someone who has not affirmatively abandoned Virginia domicile (by both leaving with no intent to return and establishing a new domicile elsewhere) remains taxable as a Virginia resident even while living out of state. The burden of proving a change of domicile rests on the person claiming it, and factors considered include intent, financial ties, employment, property, and vehicle registration — a bare assertion of residency elsewhere is not enough on its own.

Applying this framework, the Commissioner found the taxpayer met his burden for 2017. His lease, Virginia DMV records, and 2018 part-year resident return all showed he did not begin living in Virginia until 2018. He had filed a full-year resident return in State A for 2017 and used a State A address on his federal return that year. The Department weighed this against the one piece of contrary evidence — a single 2017 information return sent to a Virginia address — and found it far outweighed by everything else in the record.

Because the evidence showed the taxpayer was not a Virginia domiciliary or actual resident in 2017, the Commissioner concluded he had no Virginia filing obligation for that year and ordered the assessment abated.

What this means for you

Individuals who moved to or from Virginia

If you move into Virginia partway through a year, keep documentation — lease agreements, DMV registration dates, and the resident tax return you file in your prior state — showing exactly when you became a Virginia resident. This ruling shows the Department will abate an assessment when the paper trail clearly supports a later Virginia residency start date, even after the Department's own records show a non-filed return.

Business owners and accountants with relocating employees or clients

When a client relocates and the IRS flags a possible unfiled Virginia return, don't assume the assessment is correct. The relevant test is domicile (permanent home and intent to return) or the 183-day actual-residence rule, not simply where a stray 1099 or W-2 was mailed. Gather lease dates, DMV records, and the prior state's resident return before responding to a Department information request.

Tax professionals handling residency appeals

This ruling is a useful example of how the Department weighs conflicting indicia: a single Virginia-addressed information return did not outweigh a consistent set of lease, DMV, and dual-state filing evidence showing the client became a Virginia resident only in the following year. It reinforces that the taxpayer carries the burden under the domicile-abandonment test, but that burden can be met with ordinary relocation paperwork.

Common questions

Q: Why was the taxpayer assessed Virginia tax in the first place?
A: The IRS notified the Department that the taxpayer may have had a Virginia filing requirement for 2017, and the Department's records showed no Virginia return had been filed. When the taxpayer did not respond to the Department's request for more information, an assessment was issued.

Q: What ultimately convinced the Commissioner to abate the assessment?
A: The taxpayer's lease agreement, Virginia DMV information, and 2018 part-year resident return all showed Virginia residency did not begin until 2018, and he had filed a full-year resident return in State A and used a State A address on his 2017 federal return.

Q: Did the one Virginia-addressed information return change the outcome?
A: No. The Commissioner found that single item of contrary evidence was outweighed by the far greater weight of the other evidence showing the taxpayer was not a Virginia resident for any part of 2017.

Q: What must someone show to prove they abandoned Virginia domicile?
A: Under Va. Code § 58.1-302, they must show both actual abandonment of Virginia domicile with no intent to return, and acquisition of a new domicile elsewhere through physical presence and intent to remain permanently or indefinitely. A simple declaration of residency is not enough; the Department looks at the full set of facts and circumstances.

Citations and references

• Va. Code § 58.1-1821 (application for correction of erroneous individual income tax assessment)
• Va. Code § 58.1-302 (defining domiciliary resident and actual resident for Virginia income tax purposes)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-187

Original ruling text

November 10, 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 assessment 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. 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 was a resident of * (State A).

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. 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 evidence provided indicates that the Taxpayer did not begin residing in Virginia until 2018. The Taxpayer’s lease agreement, Virginia Department of Motor Vehicles (DMV) information and 2018 Virginia part-year resident income tax return are all consistent with this conclusion. The Taxpayer also filed a 2017 State A income tax return as a resident for the entire year. In addition, the Taxpayer filed his 2017 federal income tax return with a State A address. Although the Taxpayer had at least one 2017 information return sent to a Virginia address, that is insufficient when compared to the far greater weight of the other evidence provided to conclude that the Taxpayer should have been taxable as a full, part-year or actual resident of Virginia for the 2017 taxable year. The assessment, therefore, will be abated.

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/3427.M