Individual Income Tax Insights: Domicile Is in the Details


In 2008, a man saw his high school sweetheart for the first time in almost 40 years and proposed to her the same day. While it could serve as a plot for a Hollywood movie, it’s actually all facts from a recent New York tax case concerning domicile. Domicile is key for determining state income tax liability when taxpayers move to a new state or divide their time between multiple states. If a person is not domiciled in a state, then they are not subject to the income tax imposed on state residents. For some taxpayers, a change in domicile can result in huge tax savings, such as moving from a high rate state like New York to a state with no income tax like Florida. Similarly for states, a taxpayer claiming a change in domicile can result in gaining or losing much needed revenue.  

Domicile is generally defined by states as a place where an individual intends to have a permanent home and where the individual usually returns after being absent. Taxpayers can only have one domicile regardless of how many homes they own. They also cannot lose their current domicile simply by moving to a new place. In general, taxpayers must also take further steps such as registering to vote or renewing a license in the new state. If they frequently travel back and forth between states, they may also keep a travel log to show that their time is predominately spent in one state. While all of these steps can help, states may still require further evidence that the individual intended to make their newly claimed domicile their permanent home. Sometimes, the most relevant evidence is found in other factual details. 

Long Lost Domicile

In the New York case mentioned above, the petitioner lived in New York City and his sweetheart lived in Paris when they finally got married. After a few years of travelling back and forth between the cities, the petitioner retired on March 1, 2011, and moved to Paris to be with her the next day. However, the New York Tax Division still considered the petitioner to be a resident of New York because the petitioner still maintained and visited his New York City home for the tax years at issue. While certain facts in the case seem random at first, such as purchasing his wife a solid gold replica of the same locket he gave her in high school, they were relevant to the petitioner’s burden of proof. To meet the burden of proof for establishing a change in domicile, the petitioner had to “‘show a change in lifestyle.’” 

So the facts of this case begin in 1962, when he met his current wife while they both attended the same Connecticut high school. After graduation, she moved to Italy, married, and he never saw her again. He also got married, and for the next few decades, he commuted from Connecticut to work in New York City. He eventually became the CFO at his company, but he worked long hours and rarely vacationed. He later divorced, moved to New York City, and resumed his relationship with his high school girlfriend. His retirement meant giving up a considerable salary, but after his move to Paris, the petitioner vacationed more, became a master scuba diver, and even climbed Mt. Kilimanjaro. The court was persuaded that he changed his lifestyle and, therefore, his domicile.

Referee Benched in Minnesota

Of course, not everyone relocates for romantic reasons. In a 2013 Minnesota case, a NBA referee left Minnesota and purchased a home in Florida because of his “longstanding dislike of Minnesota’s cold climate.” He also told the court that after being prosecuted by the United States Attorney for Minnesota and then convicted by a Minnesota jury for income tax evasion, he was left with a “‘bad taste in [his] mouth.’” He moved to Florida the day after he was released from house arrest.

Minnesota weighs 28 different factors when making domicile decisions. The petitioner’s personal feelings towards Minnesota fell into the “Other” factor. The petitioner attempted to meet the other factors by showing he registered to vote in Florida, registered his primary car in Florida, and completed a Florida homestead application. He also described his lifelong dream of being a NBA referee and highlighted how his move to Florida put his dream job at risk because it increased his travel expenses and created a dispute with the NBA. However, the court pointed out that despite his job requiring extensive travel around the U.S., the petitioner still spent significantly more time in Minnesota than Florida in all of the applicable tax years and did not move his life outside of Minnesota. He was still considered subject to Minnesota income tax.

 Home Is Where the Dog Is

In another New York case, after over 15 years of being a New York resident, the petitioner accepted a new job in Dallas. He began a new life in March 2009, complete with a new apartment and a new Porsche convertible. Within a month, he also joined a local gym, went to Dallas doctors, and filled prescriptions at Dallas pharmacies. However, the court determined he did not officially change his domicile until November 2009 when he moved his dog. Not in December 2009, when the petitioner updated his address with the United States Postal Service. Not in 2010, when the petitioner obtained a Texas license and registered to vote in Texas. The court explained it chose November 2009 because when the petitioner moved his dog it represented a “move of items near and dear” that demonstrated his intention to make Dallas his domicile.  

In sum, taxpayers may present a wide range of facts to persuade a state tax court they intended to change their domicile. Which facts carry the most weight? As the cases above highlight, it can vary state by state, case by case, and story by story.

Continue the discussion on the BBNA State Tax Group on LinkedIn: What facts should state tax courts consider when determining domicile?

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