Virginia Rules that Individual is a Dual Resident but is Entitled to Claim a Credit for Taxes Paid to the Other State

August 27, 2020

Due to the state rules that determine residency for income tax purposes, an individual could be a resident of two states, which can then result in issues with claiming a tax credit for taxes paid to other states.

By: Jeff Glickman, SALT Partner

Typically, when an individual who is a tax resident of one state earns income sourced to another state, the individual will file as a non-resident in that other state and pay income tax on the income earned there. Since the state of residence taxes an individual on all income, it provides a tax credit equal to the lesser of (i) the amount of tax paid to the nonresident state and (ii) the amount of tax imposed by the resident state on that same amount of income.

But how does the credit work if an individual is a resident of two states? That is a more complicated situation and raises an even more important question: How is it possible to be a resident of two states?  These issues are the subject of a recent ruling by the Virginia Tax Commissioner in response to an appeal by a taxpayer who received a Virginia income tax assessment for the 2015 tax year.

Interestingly, this case arose because the IRS provided information to the Virginia Tax Department (Department) that the taxpayer may have been required to file a 2015 Virginia tax return. Upon review of additional information received from the taxpayer, the Department determined that the taxpayer was a Virginia domiciliary resident and issued an assessment. The taxpayer appealed, claiming that she was a resident of California.

The taxpayer moved from Virginia to California for a temporary employment opportunity in August 2014.  When her employment contract was extended, she leased a personal residence, and lived and worked in California in 2015, returning to Virginia sometime in 2016.  During that time, the taxpayer maintained her Virginia voter’s registration, motor vehicle registration, and driver’s license. She also purchased real property in Virginia in October 2015.

As is the case in almost all states, there are two types of residents for income tax purposes, domiciliary residents and actual residents. An individual’s domicile is his or her permanent place of residence and the place that he or she intends to return even when away for whatever reason. An individual has only one domicile and continues to maintain that domicile until (1) it is abandoned with an intent to not return and (2) a new domicile is acquired based on an intent to remain there permanently or indefinitely. The determination of one’s domicile is based on the facts and circumstances as indicated by the individual’s intent and conduct. These factors often involve examining the individual’s personal, financial, familial and social connections to a state.

An individual, even if not domiciled in a state, may still be an actual resident of that state if he or she maintains a place of abode and spends more than 183 days in that state during the tax year. Therefore, it is entirely possible to be domiciled in one state and an actual resident of another.

In this case, the Commissioner determined that despite filing as a California resident for 2015, the taxpayer was also a domiciliary resident of Virginia.  Specifically, the Commissioner noted that leaving the state for temporary employment does not demonstrate an intent to acquire a permanent residence outside of Virginia. In addition, even while physically present in California in 2015, the taxpayer did not establish permanent connections in California that would indicate an intent to acquire a California domicile. In fact, she maintained those connections with Virginia as evidenced by her driver’s license, voter and motor vehicle registrations, and the purchase of real estate.

Addressing the issue of tax credits, the Commissioner noted that Virginia and California have tax credit reciprocity, where instead of the resident receiving a credit for taxes paid on income earned in the nonresident (i.e., source) state, the nonresident is actually entitled to the credit.[1] In other words, the state where the income is sourced cedes the tax revenue to the resident state. However, since the individual, in this case, is a resident of both states and California rules prohibit a resident from taking a credit, Virginia applied prior guidance to permit the taxpayer to claim a credit on her Virginia income tax return.[2]

Issues surrounding residency and credits for taxes paid to other states can be complicated, particularly if an individual is viewed as a resident of two states.  Aprio’s SALT team can assist taxpayer’s with addressing residency status and tax credits to minimize the potential for double taxation of income. We previously obtained a favorable Georgia ruling on behalf of a client that allowed the client to claim a credit on his resident Georgia income tax return for taxes paid to another state where he was also required to file as a resident.[3] We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the August 2020 SALT Newsletter.

[1] Virginia has a similar tax credit reciprocity arrangement with Arizona, Oregon, and in certain cases, the District of Columbia. See the Department’s webpage explaining the tax credit.

[2] See Virginia P.D. 94-355 (11/23/94).

[3] Georgia Letter Ruling IT-2015-01, January 30, 2015.

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About the Author

Jeff Glickman

Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.