Updated July 2019
AFSA members sometimes have questions about how their overseas service impacts their domestic rights (for example, eligibility for in-state college tuition rates) and obligations (for example, liability for state income taxes). Below is a comprehensive discussion of the issues of residence and domicile that appears in Chapter 22 of the Foreign Service Institute's "Foreign Service Assignment Notebook: What Do I Do Now?" (Foreign Service Institute, Transition Center). This excerpt is from the updated March 2008 edition of Chapter 22.
A helpful discussion of how some of these issues relate to liability for state taxes is contained in AFSA's annual tax guide, appearing in the January-February issue of The Foreign Service Journal and online.
Residence and Domicile
Where is “home”? Foreign Service families, more than most, have difficulty answering that question. The query, “Where is your residence?” may be even more troublesome. It depends how you use the term “residence,” who is asking the question, and the reason for the question.
Foreign Service personnel forms use differing contexts about place of appointment, home leave address, and separation address. These may or may not all be the same, and they may or may not be the same as your domicile or legal residence. Defining these terms is difficult, and we are cautious in our attempt to do so. When legal issues are at stake—such as wills, inheritance, and taxes—it is recommended that you consult a competent lawyer to get a clear answer.
Residence is a term with no precise definition. In general terms, your residence is where you live at the moment, even if it is temporary. To cite one example, the state of Maryland says that you are a resident of Maryland in any particular year—for purposes of determining whether you have to pay resident income taxes—if you have a place of abode within the state for more than six months of that year, even though you may have a domicile in some other state.
Thus you may have more than one residence. You may be residing overseas but still be a resident of Maryland under the definition just given. But, regardless of how many residences you may have under the law, it is generally considered possible to have only one domicile.
States have different rules on how long it takes to be considered a resident or have a domicile, and the same state may require different lengths of time, depending on the reason the question has arisen. These might be, for example:
-- driver’s licenses—30 days
-- state university—one year
-- divorce—six months
You will need to investigate each item with the state in question.
Domicile is a legal term. (Sometimes the term “legal residence” is used to mean the same thing, but to avoid confusion we will use only “domicile.”) Under English Common Law you acquire at birth the domicile of your parents (which may or may not be where you are born), and your domicile is the same as that of your parents as long as you are a minor. Thereafter, you may acquire a new domicile of your own. The general rule is that to do so you must go to the new location, establish actual residence there, and concurrently have the intention of remaining there indefinitely or of returning there after any temporary absences. Although you may have many residences, you only have one domicile.
Moreover, because everyone must have a domicile, you do not lose the one that you were born with or acquired later unless you acquire a new one. It is usually not enough just to say that you are giving up your domicile in a particular state. You must show that you have given it up by moving to another state and simultaneously showing that you intend to make that state your permanent home. Your intention is thus an important element—but not the only element—of determining your domicile.
One important exception to the rules above is that intention historically has not been an important element in determining a married woman’s domicile. Under Common Law when a woman married she automatically lost her old domicile and acquired the domicile of her husband. In many states, either spouse can choose to assume the other’s domicile, or each can retain the prior domicile.
The Importance of Domicile
In several situations, determining domicile is crucial. The following discussion of some of the more common ones is not intended as a substitute for legal advice.
State Income Tax
If you are domiciled in a state that has an income tax, that state has a claim on you for taxes even when you are absent from the state. You may also owe income tax to another state because of temporary residence there (place of abode). If so, reciprocal agreements often determine which state gets your tax money, or what proportion of it, but you may have to file tax returns in both states and claim a credit for taxes paid to one of them. (Note, however, that a state may relinquish its right to collect state income tax from one of its residents.)
Foreign Service families who are assigned overseas or to Washington for the first time need to think carefully about state and local income taxes from the beginning. If you are assigned overseas, most, but not all, states continue to tax your income if you maintain your domicile in that state, even if you are not physically present there. A tour of duty overseas does not constitute a change of domicile to the overseas location. (See AFSA’s annual tax guide for a list of those jurisdictions that in certain circumstances do not tax income of non-resident domiciliaries.)
If you are assigned to Washington and decide to make it a permanent move — i.e. give up your previous domicile and make Maryland, Virginia, or the District of Columbia your permanent home—you can expect to pay income tax in your new jurisdiction from the time you move there (and also later when you go overseas). If, however, you wish to keep your domicile in your home state while temporarily residing in the Washington area in connection with a Washington assignment, you will continue to owe income taxes to your home state unless it is among those that do not tax non-resident domiciliaries in certain circumstances. Your income tax liability to a local jurisdiction in these circumstances will depend on how long you have a place of abode there in any particular year. Generally, if you reside for more than six months in a local jurisdiction, you will owe income taxes to that jurisdiction for that year even if you are not domiciled there. Again, a credit is usually allowed to prevent double taxation.
If you have not changed your domicile to the Washington area, any tax liability to a local jurisdiction should end when you move overseas, though you may continue to owe tax to your state of domicile. One suggestion is to write to the local tax authorities at the end of your Washington assignment, stating that you are no longer a local resident. If a state bills you for back taxes incurred during a period you lived overseas, it is usually necessary to prove that you never intended to establish a domicile in the state that is billing you. The factors that states consider in determining your intent are discussed below under “How Is Domicile Proved?”
Education of Children
Tuition charges at state universities are normally significantly lower for residents than for nonresidents; residents may also receive preferential admission. What most universities are talking about when they use those terms is really “domicile,” and a Foreign Service child who has been moving about the world with his or her parents is sometimes able to establish eligibility for resident fees if the parents can satisfy the university that they have retained their domicile in that state. If a child is interested in a Maryland or Virginia state university, it may be worthwhile to establish a domicile there, offsetting the possible disadvantages that come from incurring income tax liability in that state. Contact state educational institutions and ask how they determine resident status. Click here for changes to Virginia law regarding in-state tuition eligibility, effective July 1, 2019.
Attending School Outside Your Domicile
Each jurisdiction in the Washington area has regulations about children living in one jurisdiction and attending school in another. Foreign Service students temporarily living with friends or relatives while the parents are stationed overseas must pay out of county tuition in most districts. In Northern Virginia, children who do not reside in the county must pay tuition even if they are waiting to move into their permanent home in the county. Parents should consider choosing their temporary housing arrangements in the same school district where they plan to settle permanently. Maryland counties handle each situation on a case by case basis and will often permit a child to attend classes if the parents can prove they are about to move permanently into the county. For information, contact the Office of Community Relations or Information of the appropriate school district.
In Virginia, check the Department of Education website (http://www.pen.k12.va.us/); for specific school districts, select “Educational Directory,” then “Public School Divisions (websites)”. In Maryland, go to http://www.marylandpublicschools.org; select “School Systems,” then “System Links” for individual school district information. In the District of Columbia, parents who wish their children to attend a District school located outside their neighborhood must apply each year between February and April. Students are accepted on a space available, first come, first served basis. Several thousand transfer requests are processed by the DC school system each year, with justifications ranging from economic hardship or inconvenience to a desire for a child to take a particular class or program, or to be in a school with high test scores. For more information, go to: http://www.k12.dc.us.
In a normal situation, a person votes in the state in which s/he is domiciled. Remember that where you vote is one of several factors that state authorities consider in determining your domicile for other purposes. Absentee voting guidelines are available online through the Overseas Vote Foundation and the Department of Defense Federal Voting Assistance Program.
Deaths and Estates
When you die, taxes on your estate might be levied by the state where you were domiciled or by the state where your real property is located. If your estate is large enough, your heirs may find that two or more states claim the right to tax the estate if a question exists as to which was your domicile. Domicile also may have a bearing on who inherits your property.
If you die without a will, the laws of the state where you are domiciled generally determine dispersal of your property. But if you own a house or other real estate in some other state and that state has different inheritance laws, an expensive conflict is likely, particularly if there is a question as to your domicile.
If you die with a will, the will is probated in a court in the state where you are domiciled. Because formalities for making a valid will are different in different states, it is wise to consult a lawyer about your will. Discuss with your lawyer the question of domicile, including where you would expect the will to be probated. This may be particularly important if you have property in more than one state.
Filing for divorce requires your physical presence in the state where you file the petition. Usually, you must have been a resident of that state for a certain length of time. However, your spouse does not need to be a resident of that state or to be domiciled there.
How Is Domicile Proved?
An important element in establishing domicile is your intention. How do you prove that intention? Following are types of questions often asked—sometimes in the form of a questionnaire of domicile—when a state tax authority, state university, or court has to decide where you are domiciled:
-- What do you consider your permanent home? How long have you lived there?
-- Where do you actually reside? How long have you lived there?
-- Do you own or rent your residence there?
-- Do you pay income tax there?
-- What other ties do you have to that state? (Examples: family or organizations)
-- Do you own retirement property? Where?
-- Where do you have investments?
-- Where do you vote? How long have you voted there?
-- Are you a member of a church, synagogue, or mosque? Where?
-- To what professional and civic organizations do you belong?
-- What is the location of your bank accounts (checking and savings)? Where are your safe deposit boxes located?
-- In what jurisdiction have you obtained licenses (driver’s, marriage, professional)?
-- What is your home leave address?
How much weight is given to the answers to questions such as these often depends on why the question is being asked. A state may rule on the basis of rather limited evidence that you are domiciled there and therefore required to pay income tax even while you are away. The same state may require much more evidence, or weigh it differently, if you are trying to prove that you are domiciled there and therefore your child is entitled to resident status at the state university.
In sum, no easy answers exist. The closest thing to a rule of thumb would be this: if you do not intend to give up your old domicile when you move, keep as many ties there as you can, and build a record that shows your intention as you go along. To apply this rule to the state income tax, it might be worthwhile to inform tax authorities in your state of temporary residence, in writing, when you file your first tax return that you are doing so only on the basis of physical presence in the state and not because you intend to make it your permanent home. When you leave to go overseas, another letter explaining your status could also help establish your intent.
To avoid problems it is wise to consult a lawyer familiar with the tax situation in your state of temporary residence and/or your domicile.