In a state residence case, a couple of the basics are drivers license and voter registration. It reminds me a little of what one of my early mentors, Paul Deprisco, of Joseph B Cohan and Associates of Dedham ,told me about passing the CPA exam. “It doesn’t do that much for you, but they hold it against you if you don’t.” James Schmitz neglected the basics and it cost him significantly in a recent decision in the Court of Appeals of Iowa. The stakes were pretty high – over $290,000 in taxes, penalties and interest for the years 2001 and 2005. Iowa has a pretty stiff personal income tax with a top rate of 8.98%. South Dakota, on the other hand, has no income tax. That makes for one of the most expensive borders in the country.
Here is the story.
In February 2000, James was offered the position of vice president in charge of pork operations with IBP at their corporate offices in Dakota Dunes, South Dakota. James accepted the position. Vickie informed him she and the children were going to stay in Cedar Falls. In August 2000, James moved to an apartment in Dakota Dunes. James travelled to Cedar Falls to stay with Vickie and the children about forty weekends and some holidays each year.
Cedar Falls, Iowa is about 200 miles from Dakota Dunes, South Dakota – pretty much a straight shot on US 20 about 5 hours according to Mapquest. I’ll bet you can do it in a lot less. According to Mapquest Boston to Albany on US 20 (which would require a degree of masochism, if you were actually interested in going from Boston to Albany) is only about 5 and a half hours. I’ve only driven across the country once, but I’ll bet you can do Cedar Falls to Dakota Dunes much, much faster than Boston to Albany on US 20 (It is the same highway by the way. It runs from Boston to Newport, Oregon and before I die I will drive every one of its 3,365 miles.) At any rate even at Iowa speed it is still a long drive so you can see why Mr. Shmitz would want to have an apartment there. We don’t find out from the case why the family chose to stay in Cedar Rapids rather than move to Dakota Dunes, which does present itself as rather family friendly.
James continued to be registered to vote in Iowa. He requested an absentee ballot in Iowa in 2004, but testified he did not believe he turned it in. He had an Iowa driver’s license, which he renewed in Iowa in 2004. The family owned four or five vehicles, all of which were registered in Iowa. James had personalized Iowa license plates on his vehicle.
In 2005, James and Vickie built a new home on Stratford Court in Cedar Falls, and they are co-owners of this home. A note on the 1989 homestead tax credit application states James Schmitz called on May 15, 2006, stating he and Vickie both lived at the Stratford Court address, and so the homestead tax credit on the Heritage Road home should be discontinued. On June 16, 2006, James signed an application for a homestead tax credit for the Stratford Court home. This application includes the statement, “I declare residency in Iowa for purposes of income taxation and no other application for homestead credit has been filed on other property.”
The Iowa Department of Revenue sent residence questionnaires to James and Vickie. Based on their answers, the Department sent them a statement showing they owed $290,472.19 in taxes, penalties, and interest for the years of 2001 through 2005 due to James’s failure to pay Iowa income taxes. James and Vickie protested the assessment, stating James was not a resident of Iowa.
If you ever get an innocent seeming questionnaire like that from a state revenue department, it is important that you consult with a SALT (state and local tax expert) rather than just fill it in and mail it. We don’t know what Mr. Schmitz did. Given how bad his facts were, he might have been beyond help at that point.
An administrative hearing was held on February 3, 2010. James testified that he considered his residency to be in South Dakota. He noted he received mail in South Dakota, had an individual bank account there, participated in South Dakota charities, and received personal services, like doctor visits, there. James stated that due to the hours he worked it was not convenient for him to change his voter registration, driver’s license, or vehicle registration to reflect his South Dakota address. He testified he did not remember signing the homestead credit application for the Stratford Court home, but admitted it was his signature.
Well it looks like he gave it his best shot, anyway. It was not nearly enough though.
Every person has one and only one domicile. Domicile, for purposes of determining when an individual is “domiciled in the state,” is largely a matter of intention which must be freely and voluntarily exercised. The intention to change one’s domicile must be present and fixed and not dependent upon the happening of some future or contingent event. Because it is essentially a matter of intent, precedents are of slight assistance and the determination of the place of domicile depends upon all the facts and circumstances in each case.
Once an individual is domiciled in Iowa, that status is retained until such time as the individual takes positive action to become domiciled in another state or country, relinquishes the rights and privileges of residency in Iowa
There is a rebuttable presumption that an individual is domiciled in Iowa if the individual meets the following factors:
(1) Maintains a residence or place of abode in Iowa, whether owned, rented, or occupied, even if the individual is in Iowa less than 183 days of the tax year and either
(2) Claims a homestead credit or military tax exemption on a home in Iowa, or
(3) Is registered to vote in Iowa, or
(4) Maintains an Iowa driver’s license, or
(5) Does not reside in an abode in any other state for more days of the tax year than the individual resides in Iowa.
Notice the “ors”. Mr. Schmitz starts out with three presumptions against him. I have to admit I do not know how hard it is to get a South Dakota driver’s license or to register to vote in South Dakota, but it cannot be that hard. There is another adjustment that might have helped quite a bit. He could have let Mrs. Schmitz own the Cedar Falls home. Then he would not have had to sign the homestead exemption and might have had an argument that he was just visiting rather than maintaining a residence (I’m not sure how strong an argument it is, but it is an argument).
In conclusion, taking care of the basics, such as voter registration, drivers license and car registration will not win a domicile case for you, but neglecting them will likely lose it.
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com on September 26th, 2012