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We are continuing our discussion of a tax case recently decided by the Minnesota Supreme Court. While the taxpayers lived in Florida, they maintained a house in Minnetonka. In August 2007, they moved here permanently. When they filed their tax return with the state, they filed as part-time residents. The Department of Revenue determined that they had been full-time residents and, as a result, owed the state a tidy sum — almost $650,000 — in back taxes, interest and penalties.

As we explained in our last post, when there are questions of part-time versus full-time residency status, the DOR turns to the relevant part of the statute’s definition: A resident is “any individual domiciled outside the state who maintains a place of abode in the state and spends in the aggregate more than one-half of the tax year in Minnesota….” That is, if a taxpayer is domiciled — has a permanent residence — outside of Minnesota but maintains an abode here and was physically present in the state for more than half of the year (183 days), he must pay taxes for the full year.

The couple in this case spent less than 183 days in the state between January and August, while they were domiciled in Florida, so they qualified as part-time residents — at least, that is what the taxpayers argued first to the department and then to the Tax Court. The department rejected the argument, but the tax court agreed with the couple on appeal.

They misread the statute, the DOR argued. The law requires the clock run on the 183 days from Jan. 1 to Dec. 31 of the tax year in question. Because the husband had spent a good deal of his time in Minnesota before the family moved here permanently, that time plus the three or four months after they moved adds up to more than the necessary 183 days. They were residents for the entire year. The Supreme Court agreed.

Tax professionals are still trying to determine if this ruling will affect the tax status of Minnesotans who spend part of the year here and part of the year elsewhere — whether they choose to escape the winters for warmer climes or choose to retreat Up North for a few months in the summer.

Sources:

Marks v. Commissioner of Revenue, Case No. A15-1145, Feb. 17, 2016

Minnesota Public Radio, “MN Supreme Court deals financial blow to part-year residents,” Bob Collins, Feb. 17, 2016

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