State Residency Audits: Presumptions, Intentions, Acts and Declarations

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Do you or your clients split your time between two or more states? If so, you may be subject to a state "residency"audit. Currently, Minnesota is aggressively pursuing "part-year residents" or "nonresidents" via residency audits.

Similar to other states, in Minnesota, residency is generally defined by two rules:

  1. domicile or permanent residency; or
  2. the 183-day rule.

Exceptions

There are exceptions for members of the military and U.S. citizens that establish a tax home in a foreign country.

Area of Controversy

The term “resident” means any individual domiciled outside Minnesota who maintains a place of abode in Minnesota and spends in the aggregate more than one-half of the tax year in Minnesota, unless the individual or the spouse of the individual is in the armed forces of the United States, or the individual is covered under reciprocity provisions.

“Domicile” or “permanent residence” means the bodily presence of an individual person in a place with the intention of making the place his or her home.

A person who leaves home to go to another jurisdiction for temporary purposes only is not considered to have lost that person's domicile. But if a person moves to another jurisdiction with the intention of remaining there permanently or for an indefinite time as a home, that person has lost his or her domicile in Minnesota. The presumption is that a person who leaves Minnesota to accept a job assignment in a foreign nation has not lost his or her domicile in Minnesota.

Except for a person covered by the provisions of the Soldiers' and Sailors' Civil Relief Act of 1940 (50 U.S.C. App. §574), the presumption is that the place where a person's family is domiciled is that person's domicile.

The domicile of a spouse is the same as the other spouse unless there is affirmative evidence to the contrary or unless the husband and wife are legally separated or the marriage has been dissolved. When a person has made a home at any place with the intention of remaining there and the person's family neither lives there nor intends to do so, then that person has established a domicile separate from that person's family.

The domicile of a single person is that person's usual home. In the case of a minor child who is not emancipated, the domicile of the child's parents is the domicile of the child. The domicile of the parent who has legal custody of the child is the domicile of the child. A person who is a permanent resident alien in the U.S. may have a Minnesota domicile.

The mere intention to acquire a new domicile, without the fact of physical removal, does not change the status of the taxpayer, nor does the fact of physical removal, without the intention to remain, change the person's status.

The presumption is that one's domicile is the place where one lives. An individual can have only one domicile at any particular time. A domicile once shown to exist is presumed to continue until the contrary is shown. An absence of intention to abandon a domicile is equivalent to an intention to retain the existing one. No positive rule can be adopted with respect to the evidence necessary to prove an intention to change a domicile but such intention may be proved by acts and declarations, and of the two forms of evidence, acts must be given more weight than declarations.

A person who is temporarily employed within Minnesota does not acquire a domicile in Minnesota if during that period the person is domiciled outside of the state.

THE 183-DAY RULE

If a taxpayer is a resident of another state, the taxpayer may still be taxed as a Minnesota resident under the 183-day rule.

The 183-day rule depends on two conditions:

  1. the taxpayer spends at least 183 days in Minnesota (any portion of a day is counted as a full day); and
  2. the taxpayer or the taxpayer's spouse own, rent, or occupy an abode in Minnesota (see herein).

If both conditions apply, the taxpayer is a Minnesota resident for the length of time the second condition applies, If the second condition applied for the entire year, the taxpayer is considered a full-year Minnesota resident for income tax purposes. If it applied for less than a full year, the taxpayer is considered a part-year resident.

If a taxpayer maintains a home in Minnesota, but claims residency elsewhere, the taxpayer must keep adequate records to verify that more than half of the year is spent out of state. Records confirming the taxpayer's whereabouts commonly include planners, calendars, plane tickets, canceled checks, credit card and other receipts. This rule does not apply to military personnel or to people covered by reciprocity.

NEED HELP? Contact Me

As you can see, determining where you live and what state has the right to tax your income can be deceptively simply, and endlessly complicated. If you are undergoing a residency audit or have been contacted by Minnesota or another state, please contact me at brian.strahle@bakertilly.com or 612.876.4824.

See the MN DOR Website for a list of criteria used to determine residency.

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