I lived and worked in Maryland for over two years and filed a Maryland resident return -- can Virginia still tax me as a resident because I kept my house and driver's license here?

Plain-English summary

The IRS flagged that a taxpayer may have owed Virginia income tax for 2019, but the Department's records showed no Virginia return had been filed. After requesting more information, the Department determined the taxpayer remained a Virginia domiciliary resident and assessed tax; the taxpayer appealed, contending he was actually a Maryland resident.

Why: the two-part domicile-change test. Virginia recognizes domiciliary residents (whose permanent home, and place they intend to return to, is Virginia) and actual residents (anyone maintaining a Virginia abode more than 183 days a year). To change domicile AWAY from Virginia, a person must (1) actually abandon Virginia with no intent to return, AND (2) acquire a new domicile elsewhere through physical presence plus intent to stay permanently or indefinitely -- both parts, at the same time. The person claiming the change bears the burden of proving it, considering their expressed intent, conduct, and circumstances: financial independence, employment, income sources, spouse's residence, property, vehicle registration, and more. A simple declaration of residency elsewhere isn't enough.

The facts pointed both ways -- but Virginia connections won out. The taxpayer and his family moved to Maryland in June 2017 for a medical residency program: he leased a home there, had Maryland tax withheld, filed a Maryland resident return, and enrolled his child in a Maryland school. But he and his spouse had owned a Virginia home since 2008 (leased to a tenant during the Maryland years, and the taxpayer returned to Virginia in June 2020 when that tenant could no longer pay rent). He'd held a Virginia driver's license since 2005 and -- notably -- RENEWED it in 2018, during the very period he claims to have been only a Maryland resident. He also kept a vehicle registered in Virginia. Renewing a Virginia license is considered a strong indicator of intent to KEEP Virginia domicile (though holding one alone doesn't automatically defeat a change of domicile elsewhere). The Department generally expects someone genuinely changing domicile to get a new state's driver's license, register vehicles there, and register to vote -- retaining the old state's connections raises real doubt about actual intent to abandon it. The taxpayer explained he didn't get around to Maryland credentials because of the COVID-19 pandemic and his 2020 return to Virginia -- but he'd already lived in Maryland more than two years BEFORE the pandemic made that harder, undercutting the excuse.

Living and working in Maryland doesn't automatically defeat Virginia domicile. The Department made clear that a person can be an Maryland "actual resident" (taxable there because they lived and worked there) while remaining a Virginia DOMICILIARY resident at the same time -- these are separate, independent determinations under each state's own law. Filing status with Maryland has no automatic bearing on Virginia residency.

Reciprocity didn't help -- he was a "dual resident." Virginia has reciprocal income tax agreements with Maryland, West Virginia, and Pennsylvania (Va. Code § 58.1-342 B) exempting nonresidents who earn Virginia wages from Virginia tax. But Virginia's reciprocity agreement with Maryland (updated in 2006) specifically does NOT apply to someone who is a domiciliary resident of one state while maintaining an abode and spending more than 183 days in the other -- a "dual resident." Because the taxpayer fit that description (Maryland actual resident, Virginia domiciliary resident), reciprocity simply didn't apply to his situation.

But an ordinary out-of-state credit was still available. Even without reciprocity, Virginia residents can claim a credit on their Virginia return for income tax actually paid to another state (Va. Code § 58.1-332 A) -- limited to the LESSER of the tax actually paid to that state or the Virginia tax on that same income (computed by a proration formula). The taxpayer could claim this credit for the Maryland STATE income tax he paid -- but not for any Maryland LOCAL tax, which isn't creditable.

Result. The Department held the taxpayer failed to carry his burden of proving an intent to abandon Virginia domicile, so he remained taxable as a Virginia domiciliary resident for 2019. Because the original assessment was based on the Department's best available information, the taxpayer was given 60 days to file an actual 2019 Virginia resident return (potentially claiming the Maryland state-tax credit) for the assessment to be adjusted accordingly.

What this means for you

Anyone claiming a change of domicile away from Virginia

You must BOTH genuinely abandon Virginia (no intent to return) AND establish real, physical presence with intent to stay indefinitely in your new state -- at the same time. Retaining Virginia connections (property, driver's license -- especially RENEWING one, vehicle registration) while not picking up the equivalent connections in your new state raises serious doubt about your claimed change, and the burden of proving the change is entirely on you.

People living in one state while formally holding onto another state's driver's license, home, or registration

A Virginia driver's license renewal in particular is treated as a strong signal you intend to keep Virginia as your domicile -- if you're genuinely moving away, get the new state's license, registration, and voter registration promptly, and don't let old Virginia credentials lapse into a renewal.

Dual residents (domiciliary resident of one state, actual resident of another) considering reciprocity or credits

Reciprocity agreements (Virginia has them with Maryland, West Virginia, and Pennsylvania) generally do NOT apply if you're a dual resident under this definition. But you can still likely claim Virginia's ordinary out-of-state tax credit for STATE income tax actually paid elsewhere -- just not for any local tax portion.

Common questions

Q: I lived and worked in another state for years and filed a resident return there -- doesn't that prove I'm no longer a Virginia resident?
A: Not by itself. You can be an "actual resident" of another state (through physical presence there) while still being a Virginia DOMICILIARY resident -- these are separate legal questions, and your filing status elsewhere doesn't automatically settle your Virginia domicile.

Q: I renewed my Virginia driver's license while living in another state -- does that hurt my claim that I moved my domicile away?
A: Yes, significantly. Renewing a Virginia license is considered a strong indicator of intent to retain Virginia domicile, even though holding a Virginia license alone doesn't automatically defeat a domicile change elsewhere.

Q: If Virginia's reciprocity agreement with my state doesn't apply to me because I'm a "dual resident," can I still avoid double taxation?
A: Yes -- you can generally still claim Virginia's regular out-of-state tax credit for the STATE income tax you actually paid to the other state (though not any local tax there), limited to the lesser of what you paid or what Virginia would have taxed on that income.

Citations and references

Statutes:

• Va. Code § 58.1-302 -- domiciliary resident and actual resident defined
• Va. Code § 58.1-342 B -- Department authority to enter reciprocal income tax agreements with other states
• Va. Code § 58.1-332 A -- credit for income tax paid to another state, limited to the lesser of tax actually paid or the Virginia tax on that income
• Va. Code § 46.2-323.1 -- a Virginia driver's license requires certifying Virginia residency
• Va. Code § 58.1-111 -- assessment based on best information available

Prior rulings and guidance the Department relied on (described here, not linked): P.D. 00-151 (8/18/2000) -- retaining a Virginia driver's license doesn't automatically defeat an otherwise-established domicile change; P.D. 02-149 (12/9/2002) -- renewing a Virginia driver's license is a strong indicator of intent to retain Virginia domicile; Virginia Tax Bulletin 06-8 (12/27/2006) -- the updated Virginia-Maryland reciprocity agreement, excluding dual residents; P.D. 97-301 (7/7/1997) -- the out-of-state tax credit computation formula; P.D. 21-121 (9/7/2021) -- Maryland local tax isn't creditable against Virginia tax.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-59

Original ruling text

June 5, 2024

Re: § 1821 Application: Individual Income Tax

Dear *:

This will respond 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, 2019.

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 2019 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. Based on his responses and the information otherwise available, the Department determined that the Taxpayer was taxable as a domiciliary resident of Virginia and issued an assessment. The Taxpayer filed an application for correction contending he was a resident of Maryland.

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 that person and the place to which that person intends to return even though they may be residing elsewhere. For a person to change domiciliary residency to another state or country, that person must intend to abandon their 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 their 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 their 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 person’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. The taxpayer has the burden of proving that their Virginia domicile has been abandoned. If the information is inadequate to meet this burden, the Department must conclude that the taxpayer intended to remain indefinitely in Virginia.

The Taxpayer explains that he and his family moved to Maryland in June 2017 when he entered a residency program at a Maryland hospital. He began leasing a personal residence there, Maryland income tax was withheld from his wages, and he filed a Maryland resident return for the taxable year at issue. The Taxpayer’s child also began attending a school in Maryland.

The Taxpayer retained significant connections to Virginia. The Taxpayer and his spouse have owned a personal residence in Virginia since 2008 where they lived both before and after their period of Maryland residence. The Taxpayer explains that this residence was leased to a third party while he was living in Maryland. The Taxpayer returned to Virginia in June 2020 because his tenant was no longer able to pay the rent and he could not afford to maintain residences in both states. The Taxpayer has also held a Virginia driver’s license since 2005, and he renewed it in 2018 during the period he claims to have only been a Maryland resident. He also owned a vehicle that was registered in Virginia during the taxable year at issue.

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).

The Department expects that when individuals are seeking a permanent change of domicile, they will normally register vehicles, obtain a new driver’s license, register to vote, and perform other official acts indicating their intent to change domicile. Retaining such connections with Virginia raises considerable doubt as to the individual’s intent to abandon their Virginia domicile. If a permanent change of residence were intended, there would be no need to retain such connections with the former state. In this case, the Taxpayer explains that he did not have the opportunity to obtain a Maryland driver’s license or vehicle registration. He further cites the COVID-19 pandemic and the fact that he moved back to Virginia in 2020 as reasons for not obtaining these Maryland connections. The Taxpayer, however, had lived in Maryland for more than two years before the pandemic made it more difficult to obtain items such as driver’s licenses and vehicle registrations.

The Taxpayer seems to believe that he should not be subject to income tax in Virginia simply because he lived and worked in Maryland during the taxable year at issue. While this would have established him as a so-called “actual resident” of Maryland for income tax purposes, an individual can remain a domiciliary resident of one state while actually living and working in another. The Taxpayer’s filing status with Maryland has no bearing on his residency status with Virginia, which is a separate determination made under Virginia law.

As stated above, a change of domicile requires both establishing a new domicile and abandoning the old. Both of these requirements must also be satisfied concurrently. In this case, the Taxpayer’s failure to obtain connections that might indicate an intent to establish permanent residency in Maryland, such as a driver’s license or voter’s registration, coupled with the connections he retained with Virginia, raises substantial doubt as to whether he intended to change his domicile.

Reciprocity

Virginia Code § 58.1-342 B grants the Department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income tax when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. In addition, employers are not required to withhold Virginia income tax from residents of these states. Virginia currently has this type of agreement with Maryland, West Virginia, and Pennsylvania.

The reciprocal income tax agreement between Virginia and Maryland was most recently updated in 2006. See Virginia Tax Bulletin (VTB) 06-8 (12/27/2006). The updated agreement makes clear that reciprocity does not apply to a taxpayer who is a domiciliary resident of one state, but who maintains a place of abode and spends an aggregate of more than 183 days of the taxable year in the other state.

In this case, it appears that the Taxpayer was an actual resident of Maryland and a domiciliary resident of Virginia. As a so-called “dual resident,” the reciprocal agreement did not apply.

Credit for Taxes 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 or gain from the sale of a capital asset. Virginia law does not necessarily allow a taxpayer to claim a credit for the total amount of tax paid to another state. Rather, the credit is limited to the lesser of the amount of tax actually paid to the other state or the amount of Virginia income tax actually imposed on the taxpayer on the income earned or derived in the other state. See P.D. 97-301 (7/7/1997). The limitation is computed by multiplying the individual’s Virginia tax liability by a fraction, the numerator of which is the income upon which the other state’s tax is imposed, and the denominator of which is Virginia taxable income.

The Taxpayer would be eligible for credit for income tax paid to Maryland because the reciprocal agreement did not apply. The Taxpayer should be aware, however, that the local tax paid on his Maryland resident income tax return is not eligible for the credit. See P.D. 21-121 (9/7/2021).

CONCLUSION

After reviewing all of the available evidence, it is determined that the Taxpayer failed to carry his burden to prove he intended to change his domicile. Accordingly, he remained taxable as a domiciliary resident of Virginia for the 2019 taxable year.

The assessment at issue was made 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, which may include a credit for tax paid to Maryland. Therefore, the Taxpayer should file a 2019 Virginia resident 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 23261-7203, Attention: *. Upon receipt, the return will be reviewed and the assessment may be adjusted, as appropriate. If the return is not received within the allotted time, the assessment will be adjusted based on the best information available. The Department’s records indicate that the assessment has been paid in full. As such, a refund would be issued to the extent the assessment is adjusted.

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,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4788.X

Related Documents

97-301

00-151

02-149

06-8

21-121