On August 19th, the Minnesota Tax Court ruled in favor of husband and wife taxpayers who were found to have domicile in two separate states: Minnesota and Florida. The facts of the case were unique (you can read the entire opinion here), but the Court had a well-written summary of the law determining whether someone will be subject to Minnesota income tax. If you are considering moving out of Minnesota for income tax purposes, consider the analysis below from the Minnesota Tax Court.
How to Tell If You are Domiciled in Minnesota for Income Tax Purposes
All net income of a Minnesota resident individual, wherever earned, is subject to Minnesota income tax. Minn. Stat. § 290.014, subd. 1 (2018). As relevant here, “resident” means “any individual domiciled in Minnesota.” Minn. Stat. § 290.01, subd. 7(a). Minnesota Rule 8001.0300 (2013) (the Rule) provides that “domicile” is “that place in which a person’s habitation is fixed, without any present intentions of removal therefrom, and to which, whenever absent, that person intends to return.” Id., subp. 2. “To establish ‘domicile,’ one must have ‘bodily presence … in a place coupled with an intent to make such a place one’s home.’ ” Sanchez v. Comm’r of Revenue, 770 N.W.2d 523, 526 (Minn. 2009) (quoting Minn. R. 8001.0300, subp. 2). Although a person may have multiple residences, “[a]n individual can have only one domicile at any particular time.” Minn. R. 8001.0300, subp. 2 (emphasis added).
Once a person’s domicile is established in Minnesota, “it is presumed to continue until another domicile is actually established.” Mauer v. Comm’r of Revenue, 829 N.W.2d 59, 68 (Minn. 2013) (quoting Sanchez, 770 N.W.2d at 526); see also Minn. R. 8001.0300, subp. 2 (“A domicile once shown to exist is presumed to continue until the contrary is shown.”). For 40 years the Minnesota Supreme Court has emphasized that the proper focus of inquiry is on whether a new domicile has been established elsewhere, not on whether a Minnesota domicile has been abandoned: “This court has stressed that a party does not need to prove abandonment of present domicile, but, instead, rebuts the presumption that he or she has not changed domicile by proving establishment of domicile in another jurisdiction.” Sandberg v. Comm’r of Revenue, 383 N.W.2d 277, 283 n.7 (Minn. 1986) (citing Comm’r of Revenue v. Stamp, 296 N.W.2d 867, 870 (Minn. 1980)); see alsoMauer, 829 N.W.2d at 68; Sanchez, 770 N.W.2d at 526.
When a Minnesota domiciliary acquires an out-of-state residence, the issue of whether the person’s domicile has changed is “ordinarily a question of fact, depending … upon the purpose and intent of the change.” Mauer , 829 N.W.2d at 67-68 (internal quotation marks omitted). “[I]f 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 that person’s domicile in [Minnesota].” Minn. R. 8001.0300, subp. 2. The taxpayer has the burden of proving the establishment of a new domicile. Sanchez, 770 N.W.2d at 526.
It is generally presumed “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.” Minn. R. 8001.0300, subp. 2. Like the presumption that an established domicile continues, these presumptions are rebuttable. See Dreyling v. Comm’r of Revenue (Dreyling II), 753 N.W.2d 698, 702-03 (Minn. 2008); Morrissey v. Comm’r of Revenue, No. 4866, 1988 WL 91653, at *8 (Minn. T.C. Aug. 15, 1988) (finding presumptions overcome). Indeed, the Rule itself provides: “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.” Minn. R. 8001.0300, subp. 2.
To assist in evaluating domicile, the Rule sets forth 26 separate “[c]onsiderations.” Id., subp. 3. These “factors” are “nonexclusive.” Dreyling v. Comm’r of Revenue (Dreyling I), 711 N.W.2d 491, 494 (Minn. 2006). The Minnesota Supreme Court has rejected the mechanical tallying of factors for or against Minnesota domicile. Id. at 495 (“Nothing in either the statute or the rules supports such a formulaic approach.”). Instead, “[t]he factors must be weighed in each particular case.” Mauer, 829 N.W.2d at 70 (emphasis added). The need to weigh all relevant considerations arises because “[n]o positive rule can be adopted with respect to the evidence necessary to prove an intention to change a domicile[.]” Minn. R. 8001.0300, subp. 2.
In addition to setting forth factors, the Rule provides that an intention to change domicile “may be proved by acts and declarations, and of the two forms of evidence, acts must be given more weight than declarations.” Id.; Seccomb v. Bovey , 135 Minn. 353, 356, 160 N.W.2d 1018, 1020 (1917) (noting that a person’s conduct is given greater weight than a declaration of domicile). In evaluating declarations, greater weight is given to those made for reasons other than to establish domicile. Zavadil v. Comm’r of Revenue, No. 8433-R, 2015 WL 1331322, at *21 (Minn. T.C. Mar. 18, 2015).
26 Factors for Determining Whether You are Domiciled in Minnesota for Income Tax Purposes
Here are the 26 factors referenced by the Tax Court above in making a determination on whether someone is domiciled in Minnesota:
- location of domicile for prior years;
- where the person votes or is registered to vote, but casting an illegal vote does not establish domicile for income tax purposes;
- status as a student;
- classification of employment as temporary or permanent;
- location of employment;
- location of newly acquired living quarters whether owned or rented;
- present status of the former living quarters, i.e., whether it was sold, offered for sale, rented, or available for rent to another;
- whether homestead status has been requested and/or obtained for property tax purposes on newly purchased living quarters and whether the homestead status of the former living quarters has not been renewed;
- ownership of other real property;
- jurisdiction in which a valid driver’s license was issued;
- jurisdiction from which any professional licenses were issued;
- location of the person’s union membership;
- jurisdiction from which any motor vehicle license was issued and the actual physical location of the vehicles;
- whether resident or nonresident fishing or hunting licenses purchased;
- whether an income tax return has been filed as a resident or nonresident;
- whether the person has fulfilled the tax obligations required of a resident;
- location of any bank accounts, especially the location of the most active checking account;
- location of other transactions with financial institutions;
- location of the place of worship at which the person is a member;
- location of business relationships and the place where business is transacted;
- location of social, fraternal, or athletic organizations or clubs or in a lodge or country club, in which the person is a member;
- address where mail is received;
- percentage of time (not counting hours of employment) that the person is physically present in Minnesota and the percentage of time (not counting hours of employment) that the person is physically present in each jurisdiction other than Minnesota;
- location of jurisdiction from which unemployment compensation benefits are received;
- location of schools at which the person or the person’s spouse or children attend, and whether resident or nonresident tuition was charged; and
- statements made to an insurance company, concerning the person’s residence, and on which the insurance is based.
Any one of the items listed above will not, by itself, determine domicile.
Charitable contributions made by a person will not be considered in determining whether that person is domiciled in Minnesota.
Should You Move Out of State for Estate Tax Purposes?
The above discussion focused on determining whether you are domiciled in Minnesota for income tax purposes. If you are domiciled in Minnesota for estate tax purposes, you will be subject to Minnesota estate tax if your estate is more than $3,000,000 (including life insurance). As such, it is very common for clients to wonder whether they should move out of state for estate tax purposes. Here is a link to another article about which states have an estate tax: States that Have Death Taxes in 2019.
Contact our office today for a free initial consultation to discuss your estate planning needs and how income and estate taxes will affect your family moving forward.
Zach Wiegand is a Minnesota probate attorney and estate planning attorney and the owner of Gold Leaf Estate Planning, LLC. Gold Leaf Estate Planning is an estate planning law firm that also handles probate and trust administration in Minnesota. We serve the Twin Cities metropolitan area with a focus on estate planning for clients in Burnsville, Eagan, Savage, Prior Lake, Lakeville, Apple Valley, Eden Prairie and the South Metro as well as clients in Woodbury, Lake Elmo, Maplewood, Oakdale, St. Paul, and the East Metro. Our firm has offices in both Burnsville and Woodbury/Lake Elmo. The firm also handles probate cases in Dakota County, Washington County, Scott County, Hennepin County, Ramsey County, Carver County and most other counties in the Twin Cities Metro area. Zach has been named a Super Lawyer – Rising Star for 2017, 2018, 2019, and 2020. In addition, Zach is a member of the Society of Financial Service Professionals, the Twin Cities Estate Planning Council, and WealthCounsel – a national organization of estate planning attorneys dedicated to practice excellence. You can contact Zach via e-mail at firstname.lastname@example.org or by calling (952) 658-6503. Gold Leaf Estate Planning is located in Burnsville at 3000 County Road 42 W., Suite 310, Burnsville, MN 55337 and in Woodbury/Lake Elmo at 8653 Eagle Point Boulevard, Lake Elmo, MN 55042.