Virginia Taxpayer Given Final Opportunity to Establish Lack of Domicile

A recent Virginia Tax Department ruling, VA Tax Document 19-67, illustrates the need to be vigilant in responding to tax department correspondence. The Virginia Tax Department obtained information from the Internal Revenue Service (IRS) indicating that the Taxpayers, a husband and wife, may have been required to file a Virginia income tax return for the 2015 taxable year. A review of the Department’s records showed that the Taxpayers had not filed a return. The Department requested additional information from the Taxpayers in order to determine if their income was taxable in Virginia. When a response was not received, the Department issued an assessment. 

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.

The Taxpayer initially claimed that they ceased to be Virginia residents on the basis that the wife became an active duty military service member in November 2015 and they relocated to another state in connection with commencing such service. However, the Department indicated that this in and of itself would not terminate the couple’s Virginia domicile. Federal law precludes an automatic loss of residency and domicile upon entering active military service. See Servicemembers Civil Relief Act, 50 U.S.C. Section 4001. The couple then failed to respond to subsequent Department inquiries or correspondence on the matter. The Department provided one final opportunity in the ruling. Because the burden of proof is on a taxpayer to establish their residency, the Department indicated that a failure to respond within 30 days would render the Department’s final assessment to be final and correct and the Department would start collection action.

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