What does Virginia Ruling of the Tax Commissioner P.D. 21-31 conclude about Residency : Part-Year - Moved to Virginia?

Plain-English summary

The IRS told the Virginia Department of Taxation that a taxpayer may have owed Virginia individual income tax for 2017, but the Department's records showed he had never filed a Virginia return that year. When the Department asked him for more information and got no response, it issued an assessment. The taxpayer appealed, arguing that he had only moved to Virginia in August 2017 -- so he should have been taxed as a part-year resident, not for the whole year.

The Department agreed. Virginia Code § 58.1-302 recognizes two kinds of Virginia residents: a domiciliary resident (someone whose permanent home is Virginia) and an actual resident (someone who maintains a place of abode in Virginia for more than 183 days in the year). The taxpayer backed up his story with documentation showing he had paid tax to, and filed a part-year return in, another state ("State A") for 2017 -- consistent with having moved to Virginia partway through the year.

Under Virginia Code § 58.1-303, a taxpayer who becomes a Virginia resident partway through the year is only taxed on the income, deductions, and other items attributable to the period he actually lived in Virginia. He may also claim a prorated share of his Virginia personal exemptions (based on the number of days he was a Virginia resident) and a prorated Virginia standard deduction if he claims the standard deduction on his federal return.

Because the taxpayer changed his domiciliary residence to Virginia in August 2017, the Department determined he should be treated as a part-year resident and directed him to file Form 760PY (Virginia's part-year resident return), reporting only the income he received while living in Virginia. He was given 60 days to file that return, after which the Department would adjust his assessment based on the actual part-year computation -- or, if he still didn't file, adjust it using the best information available and resume collection.

What this means for you

People who moved to Virginia mid-year

If you relocate your permanent home to Virginia partway through a tax year, Virginia does not tax you as a full-year resident. You are a part-year resident, and you owe Virginia tax only on the income, deductions, and other items attributable to the period after you became a Virginia resident. You'll file Form 760PY rather than a full-year resident return, and your personal exemptions and standard deduction (if you use the federal standard deduction) are prorated for the portion of the year you actually lived in Virginia.

Multistate movers

Documentation of your move matters. In this case, the taxpayer's evidence that he had paid tax to and filed a part-year return in his prior state ("State A") for 2017 helped establish that his move -- and his change in domicile -- actually happened when he said it did. Keep records showing when you abandoned your old domicile and established a new one in Virginia, since that transition date determines how much of the year is taxed by each state.

Accountants preparing part-year resident returns

When a client relocates to or from Virginia mid-year, confirm whether they meet the domiciliary-resident or actual-resident (183-day) test under Va. Code § 58.1-302, then apply Va. Code § 58.1-303 to compute Virginia taxable income only for the Virginia-residence period. Remember to prorate personal exemptions by days of Virginia residency, and prorate the standard deduction if the client uses the standard deduction federally. If the IRS or Department flags a return as missing, responding promptly with proof of the move (such as another state's part-year filing) can resolve the matter without full-year taxation.

Common questions

Q: I moved to Virginia partway through the year. Do I owe Virginia tax on income I earned before I moved here?
A: No. Under Va. Code § 58.1-303, a part-year resident is taxed only on income, deductions, subtractions, additions, and modifications attributable to the period they actually resided in Virginia.

Q: What form do I file if I only lived in Virginia for part of the year?
A: Form 760PY, Virginia's part-year resident income tax return.

Q: Do I still get the full personal exemption and standard deduction as a part-year resident?
A: No, they're prorated. Personal exemptions are prorated based on the number of days you were a Virginia resident, and the Virginia standard deduction is prorated as well if you claim the standard deduction on your federal return.

Q: What happens if the Department assesses me as a full-year resident but I only moved here mid-year?
A: As in this ruling, you can appeal and provide documentation -- such as proof that you paid tax to and filed a part-year return in your former state -- showing when you actually became a Virginia resident. If the Department agrees, it will treat you as a part-year resident, require you to file Form 760PY, and adjust the assessment accordingly.

Q: What if I don't respond to the Department's request for information?
A: The Department can issue an assessment based on the information it has, which may treat you as a full-year resident. It's important to respond promptly and provide documentation of your move if you believe you qualify as a part-year resident.

Citations and references

Statutes cited:

• Va. Code § 58.1-302 (classes of residents: domiciliary resident and actual resident)
• Va. Code § 58.1-303 (taxation of part-year residents)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-31

Original ruling text

March 9, 2021

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 individual 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 to determine if his income was subject to Virginia income tax. When the Taxpayer did not respond to the information request, the Department issued an assessment. The Taxpayer filed an appeal, contending that he moved into Virginia in August 2017.

DETERMINATION

Residency

Virginia Code § 58.1-302 sets forth two classes of residents, a domiciliary resident and an actual resident. 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.

The Taxpayer contends that he changed his residence to Virginia in August 2017. He has provided documentation that both * (State A) and his Virginia liability was paid and that he filed a State A part-year return for the 2017 taxable year.

Part-Year Residents

Virginia Code § 58.1-303 provides that a taxpayer who becomes a resident of another state during the taxable year is subject to taxation for the period in which he was 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.

Because the Taxpayer asserts that he changed his domiciliary residence to Virginia in August 2017, he may be considered a part-year resident under Virginia law. Individuals who move into Virginia during a taxable year file a part-year resident return (Form 760 PY). The Taxpayer should file a 2017 Form 760 PY and report the income he received while residing in Virginia.

The requested return should be filed within 60 days of the date of this letter and mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23216-7203, Attention: *. Once the return is received, it will be processed and the assessment will be adjusted accordingly. If such return is not filed within the allotted time, the assessment will be adjusted based on the best available information, 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/3641.B