The IRS flagged that I never filed a Virginia return, but I was living and working in another state that year with employer-provided housing -- am I still on the hook as a Virginia resident?

Plain-English summary

The Department learned from the IRS that a taxpayer may have needed to file a 2017 Virginia income tax return but hadn't. When a request for more information went unanswered, the Department issued an assessment based on the best information it had available. The taxpayer appealed, arguing he was actually living and working in another state ("State A") during 2017. As proof, he provided a Form W-2 showing State A employment (with State A tax withheld) and a Form 1099-Misc, both mailed to a State A address, and explained that his employer provided his housing there, so he never needed to sign his own residential lease.

The State A evidence didn't clearly establish even a permanent abode there, let alone abandonment of Virginia. The documentation the taxpayer provided didn't show whether his position with the State A employer was permanent or indefinite -- a real gap, since without knowing that, it's unclear whether he'd even established a PERMANENT place of abode in State A at all, one of the two things a person must prove to change domicile (the other being abandonment of the old one, with no intent to return).

Meanwhile, his Virginia ties stayed strong. He filed his 2017 return using a Virginia address, received a 1099 at a Virginia address that same year, held a Virginia driver's license first obtained in 2013 (renewed continuously since), and was registered to vote in Virginia -- actually voting in the 2017 election. Virginia law only allows DOMICILIARY residents to hold a Virginia driver's license (a nonresident must use their home state's or country's license instead), so continuously holding one is treated as a meaningful indicator -- not conclusive on its own, but a real factor -- of ongoing Virginia domiciliary intent. Combined with continued active voting in Virginia, these facts painted a picture of someone who hadn't formed the necessary intent to abandon Virginia permanently, even while actually living and working in State A during the year.

Since a domicile change requires proving BOTH abandonment of the old home and establishment of a new one, and the taxpayer's evidence fell short on both fronts (an uncertain State A living arrangement, and clear signs he hadn't cut Virginia ties), the Tax Commissioner found he remained a Virginia domiciliary resident for 2017 and upheld the assessment. Because it was built on limited "best available" information, the taxpayer was invited to file an actual 2017 Virginia return to more precisely establish his liability -- potentially including a credit for any income tax he'd paid to State A.

What this means for you

Anyone claiming employer-provided housing shows they'd relocated permanently

Employer-provided housing, by itself, doesn't establish the PERMANENCE required to show you've made a new place your actual home -- without more (a lease, a home purchase, or other evidence the arrangement was indefinite), it can leave your abandonment claim short on proof.

Individuals maintaining a Virginia driver's license and voter registration while living elsewhere

Understand these aren't neutral formalities -- Virginia specifically restricts driver's licenses to actual domiciliary residents, so continuously holding and renewing one (and especially actively voting) sends a strong signal you still consider Virginia your permanent home, working against a domicile-abandonment claim.

Taxpayers who receive a best-information-available assessment after ignoring an initial document request

Respond to the Department's requests for information promptly -- this taxpayer's assessment stemmed partly from failing to respond the first time, and even after appealing, the practical remedy was simply to file the actual return with real substantiation, which the Department will use to refine the assessment.

Common questions

Q: Does having employer-provided housing in another state count as establishing a new domicile there?
A: Not by itself -- this ruling shows that without evidence the position (and the housing arrangement) was permanent or indefinite, employer-provided housing alone doesn't prove you've formed the requisite intent to make that state your new permanent home.

Q: Can I hold a Virginia driver's license while claiming I've become domiciled in another state?
A: You can, and the Department has found this possible in other cases, but Virginia law restricts driver's licenses to actual residents, so continuously holding and renewing one is treated as meaningful (though not conclusive) evidence you still intend to remain a Virginia domiciliary.

Q: What should I do if I disagree with a "best information available" Virginia assessment based on IRS data?
A: File the actual, accurate return for that year with real supporting documentation -- the Department will review it and adjust the assessment (including applying any available credit for tax paid to another state) based on what you submit.

Citations and references

• Public Document 00-151 (8/18/2000) -- found that an individual may successfully establish domicile outside Virginia even while retaining a Virginia driver's license
• Public Document 02-149 (12/9/2002) -- found that obtaining or renewing a Virginia driver's license is a strong indicator of intent to retain Virginia domiciliary residency

Subject

Residency : Domicile - Work outside Virginia, Failure to Abandon

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-58

Original ruling text

May 4 ,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 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 Taxpayer states that he was living in State A in 2017. As evidence, the Taxpayer submitted a Form W-2 indicating he was employed by a State A employer and had State A income tax withheld. The Form W-2, along with a Form 1099-Misc, were sent to the Taxpayer at a State A address. The Taxpayer asserts that he was provided employer-owned housing during this time, and as such a lease for a personal residence was not necessary. The documentation provided, however, does not show whether his position with the State A employer was permanent or indefinite, which raises questions as to whether the Taxpayer even established a permanent place of abode in State A.

The Taxpayer, however, maintained significant connections with Virginia. He filed his 2017 income tax return using a Virginia address, and received a Form 1099-Misc. for the 2017 taxable year at a Virginia address. In addition, the Taxpayer obtained a Virginia driver’s license in 2013, which he has maintained through the current date, which indicates he was a domiciliary resident of Virginia prior to taking the position in State A. He was also registered to vote in Virginia, and participated in the 2017 election.

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 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).

The fact that an individual has a Virginia driver’s license is one factor to consider, among other possible factors, in any given domicile case. Nonresidents are not permitted to hold Virginia driver’s licenses. See Virginia Code § 46.2-323.1. They are, however, permitted to continue to use their licenses from their home states or countries. See Virginia Code § 46.2-307. For the purposes of Title 46.2 of the Code of Virginia , “nonresident” is generally defined as every person who is not domiciled in the Commonwealth. See Virginia Code § 46.2-100. Thus, in general, an individual must be a domiciliary resident of Virginia in order to hold a Virginia driver’s license.

Although it appears that the Taxpayer was living and working in State A during 2017, these factors alone is not determinative of whether he changed his domicile. The Department acknowledges that a change of domicile occurs as part of a process in which no single factor is dispositive. After carefully considering all of the evidence presented, I find that the Taxpayer has failed to prove he changed his domicile to State A prior to or during the 2017 taxable year, but clearly shows he subsequently returned to his permanent home in Virginia. As such, the Taxpayer remained a domiciliary resident of Virginia and was required file a Virginia income tax return for the 2017 taxable year. Accordingly, the assessment is upheld.

The assessment at issue was made based on the best information available to the Department pursuant to Virginia Code § 58.1-111. The Taxpayer may have information that better represents his Virginia income tax liability for the taxable year at issue. Therefore, he should file a 2017 Virginia resident income tax return to more accurately reflect his Virginia tax liability. The Taxpayer should be aware that he may be able to claim a credit for income tax paid to State A pursuant to Virginia Code § 58.1-332.

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: *. Upon receipt, the return will be reviewed and the assessment will be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be adjusted based on the information available.

The Code of Virginia sections 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/3551.A

Related Documents

00-151

02-149