How does one become an Ohio resident?
It’s not hard, I suppose. One could
just buy a house in Ohio and live there.
How does one stop being an Ohio
resident?
That one is a bit trickier. I would
probably start by selling that same house and moving. It is a simple solution,
but not one tailored to the needs of the snowbirds. I would not mind being a
snowbird. Call me crazy, but I could separate myself from Cincinnati winters
and spend that time in better weather.
Let’s say that you live in
Cincinnati. You have a second home in Ft. Myers, Florida and a great deal of
discretion as to how much time you spend in each state. You would like to move
your “residency” to Florida, as Florida does not have an income tax. You still
have friends and family in Cincinnati, however, so you intend to keep your
house here. Can you do so and still be considered a Florida resident?
Of course you can.
Ohio is not one of those states that
will chase you down to the ends of the earth to tax you years after you have
left.
But that doesn’t mean there aren’t
rules to follow.
And someone recently thought that
those rules did not apply to them. The case is Cunningham v Testa. Let’s
talk about it.
We have talked before about the idea
of “domicile” in state taxation. Domicile is easy for the vast majority of us.
We have one house, and we live there with our family. We have one house, one
abode, one domicile. A house gives one an “abode,” and if one is fortunate one can
afford more than one abode. Domicile rises above that. Domicile wants to know
which abode is one’s true home: the one with the pencil markings measuring the
kids’ height over the years, the squeaky floorboard at the top of the steps,
the cold corner in the living room that never really warms up no matter how one
sets the thermostat.
Domicile wants to know which abode is
that house. You know - your home. The
concept borders on the mystical.
Ohio is one the states that looks at domicile
when determining whether one is a resident or nonresident. Ohio doesn’t care
about that house in Florida. That is just an abode until one raises it to the
level of domicile.
Remember that Ohio has a tremendous
number of snowbirds. In years past the state expended a not-insignificant
amount of resources reading tea lives and consulting Tarot cards to figure-out
whether or not someone was an Ohio resident. Ohio needed something less employee-intensive.
Ohio decided to use a “bright-line”
test and would henceforth look at “contact periods.” If one had enough contact
periods it would consider one a resident. If not, it would consider one a
nonresident … unless there were other factors indicating that one was a
resident.
For the most part it was now an arithmetic
exercise. The “… unless” part was there to prevent one from gaming the count.
COMMENT: A contact period occurs if (1) one is away from
his/her domicile (2) overnight and (3) is in Ohio for all or part of two
consecutive days. It is not the same as
sleeping overnight in Ohio, as the test is not where one sleeps. One could book
a hotel in Covington, Kentucky for example, and cross the bridge into Ohio in
the morning. If one crossed the bridge for two consecutive days, there would be
a contact period.
Ohio added up the contact periods. If
there were at least 183, then Ohio considered one a resident.
NOTE:
Starting in 2015 that count has been raised to 213.
Back to the Cunninghams.
He filed an “Affidavit of Non-Ohio
Domicile” for tax year 2008, using his name, social security number and
Cincinnati address. She did not file anything.
COMMENT: Mrs. Cunningham is immediately out-of-the-game.
He declared he was a resident of
Tennessee, although he did not give an address.
COMMENT:
That did not help.
Nonetheless, filing the Affidavit shifted
the burden to Ohio.
And Ohio responded by issuing a notice
and then an assessment.
The Cunninghams appealed.
Time to show your cards, Ohio.
(1) Cunningham and his wife were raised
in Ohio and raised their children there.
COMMENT: Fail. What else do you have, Ohio?
(2)
He
listed his Ohio address on his tax return.
COMMENT: Dumb but not fatal.
(3) He had his Tennessee utility bills forwarded
to Cincinnati for payment.
COMMENT: Same as (2), although I am wondering who was in
Cincinnati to pay the bills if they were in Tennessee.
(4)
He
maintained an Ohio driver’s license.
COMMENT: That guy, he is such a procrastinator …
(5)
He
voted in Ohio during the year.
COMMENT: Did no one advise this guy?
(6) He did not present a calendar of
contact periods.
COMMENT: He’s got this ADD thing with paperwork …
(7) He filled-out paperwork to obtain homestead
exemption on his Cincinnati residence.
COMMENT: Really?! I mean it, REALLY???
Let’s just say that the Tax
Commissioner persuaded the Ohio Supreme Court that any affidavit Cunningham filed
was bunkum. Cunningham was an Ohio resident under common-law tests. The bright
lines rules – while invaluable – are not an absolute defense against the
common-law tests for residency.
There has been some hyperventilation
in the wake of this decision. Here is an example from the Ohio Society of CPAs:
This ruling will encourage even more litigation whenever the
commissioner decides to challenge an affidavit as ‘false,’ and will render
almost meaningless the recent increase in allowable contact periods from 182 to
212.”
No, no it doesn’t, and I greatly
doubt that Ohio wants to get into repetitive shootouts with taxpayers on this
issue. That is why Ohio moved to a bright-line standard in the first place.
Just have some common sense out there,
folks.
