Written By: Associate Attorney, Alison Grafsgaard
A recent Minnesota Supreme Court ruling about Minnesota residency may carry a hefty price tag for so-called Snowbirds who change their domicile in a given year. As the Minnesota Star Tribune reported, “[t]he 4-3 opinion, in the case of a Minnetonka couple, sharply defined what the justices described as an ambiguous law that determines when a person is considered a resident in Minnesota.” The decision could feasibly cost a Snowbird, one who spends part of the year in warm weather—and normally tax—friendly climes, nearly 10% of their income.
In the case of a wealthy Minnetonka family—the Markses, the Court ruled that the time the Markses spent in Minnesota before changing their domicile from Florida to Minnesota counted for determining their tax status. Before this case, many believed that only days spent as a domiciliary mattered for tax status determinations.
So, you might find yourself asking, what exactly is the difference between domicile and residency? And why does this matter anyways? Well, the two terms—domicile and residency—are similar, but distinct. A person establishes his or her domicile by having physical presence in a jurisdiction with the intent to make it a permanent home. One’s physical presence is all that matters for residency. Minnesota taxes two types of citizens subject to state income tax: those domiciled in Minnesota and another class of people who i) are domiciled outside of Minnesota, ii) maintain an “abode” in Minnesota, and ii) spend in the aggregate more than one-half of the tax year in Minnesota.
The Markses were in that second class. They moved to Minnesota in August, which allowed them to fit neither category and, they hoped, avoid Minnesota’s state income tax in lieu of Florida’s since it has lower state income tax. But, the Markses had spent enough time in Minnesota preparing for the move, that their total number of days in Minnesota exceeded the one-half of the year requirement. The Court reasoned that this additional time the Markses had spent in Minnesota counted towards the half year requirement.
Interestingly, the Supreme Court reviewed the lower tax court’s ruling using a mix and match of the two definitions to conclude that the Marks’ met the above criteria in the year 2007 and therefore should be subject to Minnesota income tax. The prior ruling on the case provided that only the days after the family physically moved (thus changing their domicile to Minnesota) counted, and therefore the 108 days of visiting and buying their home could not be tacked on for that year, thereby making the Marks not subject to Minnesota’s state income tax. Three Supreme Court justices dissented to the new ruling, noting that the issue was for the legislature rather than the Court.
Justice Stras elaborated on the new law’s ramifications—something all potential Snowbirds should bear in mind: “An individual moves to Minnesota before July 1. That person buys or rents an “abode” before arriving in the state and establishes it as his or her new home. Although that person had no prior contact with the state, the revenue department can treat the taxpayer as a full-year resident of Minnesota.” Here’s the bottom line: If you plan to spend just 182 days in Minnesota as a domiciliary for tax purposes, make sure you do not step foot in the state for a 183rd day or rent an “abode” beforehand, or you could be subject to Minnesota state income taxes.