r2i forum

I spoke to Dept. of Taxation in State of Virginia, where I currently reside to check if I need to file state taxes even when residing abroad. Virginia's rules for its residents living abroad follows (from their website):

Individuals Living Abroad
Virginia residents who travel outside the country, or take up temporary or permanent residence abroad, should be aware of the filing provisions discussed below.
Overseas Rule

If you are residing or traveling outside the United States or Puerto Rico (including persons serving in the military or naval service) on May 1, you are not required to file your return until July 1 of the filing year. You must attach a statement to your return certifying that you were outside the United States or Puerto Rico on the date the return was due.
Residency Issues for Persons Living Abroad

If you are a Virginia resident who accepts employment in another country or moves outside the United States for other reasons (including military orders), the fact that you are living abroad does not mean that you are no longer considered a Virginia resident for tax purposes. Unless you have established residency in another state, you will still be considered a domiciliary resident of Virginia, and will be required to file Virginia income tax returns.
A domiciliary resident of Virginia is one whose legal domicile in the technical sense is in Virginia. Unless an individual acquires a legal domicile in another state, he or she is still a Virginia resident. This applies even if the person is residing in another jurisdiction and may have been residing there for a number of years. The fact that a person has been absent from Virginia, whether in the foreign service of the United States or in the exercise of private enterprise, does not in any way cancel out their Virginia citizenship or legal domicile. As a matter of law, he or she is as much liable to income taxation in Virginia as residents who are physically present in Virginia throughout the year.
Every resident of Virginia, including domiciliary residents, is liable to State income taxation as a resident. This means that they are subject to Virginia income tax on their entire income, whether it came from sources in or outside of Virginia. Those persons qualifying to exclude certain foreign income from their federal returns in accordance with Section 911 of the Internal Revenue Code will receive the same exclusion on their Virginia returns.
Filing Instructions for Individuals Living Abroad

File your return with the Commissioner of the Revenue, Director of Finance, or Director of Tax Administration for the city or county in which you lived. We have listed the mailing address for returns on the back of the income tax instruction booklet, or click the address here to see the list. The addresses are listed by city and county and include the local office phone number. Please check the list to determine where you should mail your return.

After much discussion and after the rep. checked with several supervisors at the VA tax dept, they could not reach a unanimous agreement on the above stated "policy". For eg, does having a VA driver's license and a PO Box address (just for mail handling and forwarding purposes) make one a resident for tax purposes? Have any recent USC-R2Iers investigated this issue for VA or any other state with similar domicilary rules?

For California: http://www.ftb.ca.gov/forms/06_forms/06_1031.pdf In CA you are safe. In VA you are screwed - it appears.

Note this examples from the document:
Example 4 ? You and your spouse are California
residents . You accept a contract to work in South America
for 16 months . You lease an apartment near the job site .
Your contract states that your employer will arrange your
return back to California when your contract expires . Your
spouse and your children will remain in California residing
in the home you own .
Determination: You maintain strong ties with California
because your spouse and children remain in your
California home during your absence . Your intent is to
return to California, and your absence is temporary and
transitory . You remain a California resident during your
absence . You are taxed on income from all sources,
including income earned in South America .

Example 5 ? You receive and accept a permanent job
offer in Spain . You and your spouse sell your home in
California, pack all of your possessions and move to
Spain on May 5, 2006, with your children . You lease an
apartment and enroll your children in school . You obtain
a Spanish driver?s license and make numerous social
connections in your new home . You have no intention of
returning to California .
Determination: You are a part-year resident . Through
May 4, 2006, you were a California resident . On
May 5, 2006, you became a nonresident . All your income
while you were a resident is taxable by California . While
you are a nonresident, only income from California
sources is taxable by California .

Example 6 ? You are a resident of California . You accept
a 15-month assignment in Saudi Arabia . You put your
personal belongings, including your automobile, in
storage in California . You have a California driver?s license
and are registered to vote in California . You maintain
bank accounts in California . In Saudi Arabia, you stay
in a compound provided for you by your employer, and
the only ties you establish there are connected to your
employment . Upon completion of your assignment, you
will return to California .
Determination: You have maintained greater
connections with California than you have established
in Saudi Arabia . Your absence is for a temporary or
transitory purpose . Therefore, you remain a California
resident . As a California resident, your income from all
sources is taxable by California, including the income that
you earned from your assignment in Saudi Arabia .

Example 7 ? You are a resident of California and a
single taxpayer . You accept a three-year assignment
in Japan . Your assignment in Japan covers the period
January 1, 2005, through December 31, 2007 . You rented
out your residence and put your truck and belongings in
storage in California . You maintained your California bank
accounts, driver?s license, and voter registration . You have
less than $200,000 of intangible income during each year .
Upon completion of your assignment, you intend to return
to California . You returned to California to visit family no
longer than a total of 45 days during the tax years 2005
or 2006 .
Determination: You meet the safe harbor rule . You are a
nonresident during your absence from the state .

Nand,

The rules do appear a little more relaxed in CA than VA. Worst case, I will not have a PO address based out of VA (will choose another state) and even if that does not suffice, I can turn in my VA Driver's license for cancellation after R2I - that will be the one last thing "tying" me to VA, so even with that gone, there is no residency claim possible.

My guess is that in practice, one can make an argument that if one takes up permanent residency in another country (i.e. OCI or PIO status allowing permanent stay), I don't think VA or any state can claim residency on that individual. I agree with VA's position that just a temporary visa allowing one to stay in a foreign country does not abandon state residency as you have not established an intent to live there permanently. All these policies are gray by their own admission and what they really look for is "intent" to settle outside the state. Intent can be claimed - convincingly, IMO - by obtaining permanent residency abroad. Having an OCI/PIO should therefore be enough for a USC R2Ier. All states hate to lose a taxpayer. So, they attempt to stretch their tentacles as long and wide as possible even when their residency claim is feeble.

The VA rules are usurious. However if you can show you have moved permanently thru OCI/PIO, job and residence proof in India etc. you shd be ok. One more thing maybe for you to close bank accounts in VA. Maybe open them using an address in a 0 income tax state like WA or TX where you may have a friend. If you have lead time you can plan these things.

KRV;83392Nand,

The rules do appear a little more relaxed in CA than VA. Worst case, I will not have a PO address based out of VA (will choose another state) and even if that does not suffice, I can turn in my VA Driver's license for cancellation after R2I - that will be the one last thing "tying" me to VA, so even with that gone, there is no residency claim possible.

My guess is that in practice, one can make an argument that if one takes up permanent residency in another country (i.e. OCI or PIO status allowing permanent stay), I don't think VA or any state can claim residency on that individual. I agree with VA's position that just a temporary visa allowing one to stay in a foreign country does not abandon state residency as you have not established an intent to live there permanently. All these policies are gray by their own admission and what they really look for is "intent" to settle outside the state. Intent can be claimed - convincingly, IMO - by obtaining permanent residency abroad. Having an OCI/PIO should therefore be enough for a USC R2Ier. All states hate to lose a taxpayer. So, they attempt to stretch their tentacles as long and wide as possible even when their residency claim is feeble.[/quote]

Does anyone know as to what the state NJ considers?

Thanks

I wanted to update this thread with some additional information I gathered. As I posted in the OP, VA and possibly other states have stringent domiciliary rules, and the following para is taken from VA's website.

Unless an individual acquires a legal domicile in another state, he or she is still a Virginia resident. This applies even if the person is residing in another jurisdiction and may have been residing there for a number of years. The fact that a person has been absent from Virginia, whether in the foreign service of the United States or in the exercise of private enterprise, does not in any way cancel out their Virginia citizenship or legal domicile.

To better understand what legal domicile really means, I read Chap. 4 of IRS Pub 54 and spoke to an international taxation expert. Here's what I found:

First, residency alone does not establish legal domicile. If a USC stayed in a foreign country for more than a year, this person will meet the bona fide resident test for the foreign country and IRS will also give you foreign earned income/tax credit exclusions. However, from a state perspective, your legal domicile could still be whatever state you last resided in because as a US citizen, they will assume that your intent is return back someday no matter how many years you stayed abroad and even if you owned your only house in that country. So, the state-level tax nexus appears a little more difficult to shake off for a returning USC.

A strong case against "legal domicile" is made if the USC acquires a permanent residency or dual citizenship of the foreign country where he/she resides. Though the expert did not confirm specifically, he felt that the privileges offered to OCI and PIO card holders (based on my description) could help make the case that they are at least equivalent to acquiring permanent residency. Therefore, a state cannot use the legal domicile argument effectively to bring such USCs into its tax net. This, combined with other preventive steps discussed earlier in this thread, should help the USC cut off the tax nexus with the last state resided in the U.S.