Minnesota: Do You Know Where You Live?
Sanchez v. Commissioner of Revenue, Supreme Court of Minnesota, A08-2281, filed August 20, 2009.
The Minnesota Supreme Court recently held that a taxpayer's "domicile" was in Minnesota for the entire tax year, despite the taxpayer having done the following:
- Listed Minnesota home for sale in 2003.
- Sold its house in Minnesota on June 18, 2004.
- Taxpayer took several trips to South Dakota in 2004 prior to June 18, 2004.
- Obtained a mailing address in South Dakota.
- Obtained South Dakota drivers licenses, opened a checking account, obtained credit cards, registered vehicles and registered to vote in South Dakota.
- Notified insurance providers of their new address.
- The taxpayer did NOT rent or purchase property in South Dakota, as they planned to travel (via a motor home), and wanted to avoid the expenses and obligations of home ownership.
- Taxpayer stated they intended to return to South Dakota to rent or buy a home later.
- Taxpayers moved from Minnesota when the house was sold on June 18, 2004 and did not reside in Minnesota since that date.
- Taxpayer filed 2004 return as "part-year residents."
- Minnesota believed taxpayer was a MN resident for the entire year, and assessed additional tax, interest and penalties.
Issue On Appeal
The issue on appeal was whether the tax court correctly found that the taxpayer's actions failed to demonstrate either physical presence, or an intent to establish domicile, in South Dakota in 2004.
In Minnesota, "all net income of a resident individual is subject to tax." Minn. Stat. § 290.014, subd. 1 (2008). The definition of "resident" applicable here is "any individual domiciled in Minnesota." Minn. Stat. § 290.01, subd. 7(a) (2008); see Minn. R. 8001.0300, subp. 1 (2007). To establish "domicile," one must have "bodily presence . . . in a place coupled with an intent to make such a place one‟s home." Minn. R. 8001.0300, subp. 2 (2007). Domicile "is that place in which that person's habitation is fixed, without any present intentions of removal therefrom, and to which, whenever absent, that person intends to return."
While individuals can be residents of more than one state, as residency only requires physical presence in a place, individuals can have only one domicile at any time. Minn. R. 8001.0300, subp. 2. Once domicile is established in Minnesota, it is presumed to continue until another domicile is actually established. The taxpayer has the burden of proving a new domicile outside of Minnesota. See Sandberg v. Comm’r of Revenue, 383 N.W.2d 277, 283 n.7 (Minn. 1986).
"One must actually reside in the new state at the time the intent is formed to make the new state one's permanent home." Wolf v. Comm’r of Revenue, No. 7068, 1999 WL 640030, at *2 (Minn. T.C. Aug. 17, 1999); see also Davidner, 304 Minn. at 493-94, 232 N.W.2d at 7. "Residence without intention, or intention without residence" does not establish domicile. Davidner, 304 Minn. at 493, 232 N.W.2d at 7; see also Minn. R. 8001.0300, subp. 2. P.
The administrative rules of the Department of Revenue contain a list of 26 factors to consider in determining whether a taxpayer remains domiciled in Minnesota for tax purposes; no single item is determinative. Minn. R. 8001.0300, subp. 3 (2007). All parties agree that the taxpayers left Minnesota with no intent to return. The issue is whether the taxpayers established a new domicile in South Dakota.
The MN Supreme Court has said that to "establish or change one's domicile requires one's bodily presence in a place coupled with an intent to make such place one's home." Manthey v. Comm’r of Revenue, 468 N.W.2d 548, 549 (Minn. 1991).
We need not decide whether presence and intent must be simultaneous under every possible scenario. Suffice it to say that on this record, there is ample support for the tax court's conclusion that the taxpayers had no physical presence in the State of South Dakota that was sufficient to demonstrate that they intended to make their home there and integrate their lives into the community. There is no evidence that their visits to South Dakota during 2004 were anything more than brief, temporary stays for the purpose of establishing a mailing address.
The taxpayers argued that the tax court should have found that their situation was analogous to Marcotte v. Comm’r of Revenue, No. 4541, 1987 WL 10252, at *2 (Minn. T.C. Mar. 13, 1987).
In Marcotte, the taxpayer purchased a condominium in Florida in May 1982 but retained a Minnesota condominium until the housing market improved in 1985. After going to Florida to buy the condominium, Marcotte traveled in a motor home, returning to Minnesota, and also visiting Wisconsin, Montana, and Canada. He finally settled in Florida in October 1982. The tax court concluded that Marcotte was domiciled in Florida as of May 1982, as he had a valid reason not to sell his Minnesota condominium, he had a Florida driver‟s license, registered to vote in Florida, registered his vehicles in Florida, and joined a tennis club. Marcotte also cancelled his Minneapolis Athletic Club membership, although he did retain bank accounts in Minnesota and had friends, relatives, children, and parents in the state.
According to the Court, in this case, unlike Marcotte, there was no evidence that the taxpayers established their domicile in South Dakota because South Dakota was not the place in which their habitation was fixed. Minn. R. 8001.0300, subp. 2.
Justice Alan Page dissented or disagreed with the MN Supreme Court's ruling.
Justice Page stated that the court has never before held that a taxpayer must shackle themselves to another state in any specific fashion or for any specific period of time in order to effect a change in domicile. But after this case's decision, taxpayers wishing to establish a change in domicile will have to buy or rent property in another state and remain physically present in that state for some undefined period of time. Because the taxpayers did not buy or rent property or spend sufficient time in South Dakota, they remain to this day subject, at the Commissioner of Revenue's whim, to Minnesota's income tax even though they have completely abandoned their Minnesota domicile.
I agree with Justice Page and believe this case should be overturned. However, it is a MN Supreme Court case. Therefore, taxpayers with similar facts or circumstances should consult a state tax professional to determine the proper course of action.
As always, contact me at leveragesalt@earthlink with questions or to discuss your situation.
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
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