Originally published on Forbes.com Sept 16th, 2014
There is a story that you might hear from spiritual teachers or motivational speakers about how to catch a monkey. Something attractive is put in a tight space into which a hand can be inserted, but from which a closed fist cannot be withdrawn. The monkey unwilling to let go of the prize ends up being stuck by his own greed. It sometimes seems that states with income taxes have adopted a similar approach to would be non-residents. Things like favorable tuition rates, better deals on hunting and fishing licenses and as in the case of David DeWald before the Montana Tax Appeal Board property tax relief.
Property Tax Relief
Mr. DeWald owns a home in Billings, Montana. Although there are a lot of factual disputes, everybody seems to agree that his mother lives there. Mr. Dewald applied for property tax relief through the Montana Property Tax Assistance Program for low income homeowners. In order to qualify under the PTAP, the related property had to be his principal residence for at least seven months of the year. On his 2012 PTAP applicaton, Mr. DeWald checked the box indicating that he was a single qualifying owner and submitted a federal income tax return for 2011 showing $15,420 in income and the house in Billings as his address.
Revenue Department Takes A Look
In order to verify his claim, DOR looked for his Montana state income tax return. Finding none they got a copy of the federal return that he filed. It differed somewhat from that he had attached to the PTAP application. Specifically, the income was higher and the address was a PO Box in Jackson Hole Wyoming. According to Mapquest it is 359.75 miles between Billings and Jackson Hole if you mainly take I-90 and 295.54 miles if you mainly take US 20 (It is nice to know that US 20 and I-90 have the same intimate relationship in the Far West as they have in Massachusetts). Mapquest gives you the two alternatives because the shorter route which goes thorough Yellowstone National Park is subject to winter closure. Anyway, Billings to Jackson Hole where Mr. DeWald worked as a hotel night auditor would be a tough commute even at Western speeds.
Revenue Department Lays A Trap
Here is where the DOR got a little sneaky subtly encouraging Mr. DeWald to tightly grasp that $400 real estate tax break, his purported Montana residency entitled him to. DOR asked him to complete a residency declaration form. On the former he declared his Billings address as his permanent residence, attested that he owned the home and had resided there for 42 years. He also indicated that he had a Montana driver’s license, various local bank accounts and stated that he considered himself a permanent resident of Montana.
The Stickiness Of Domicile
A little bit of background is in order here. What state you are a resident of is not determined by where you spend your time, although that can be a factor. (There is a concept called “statutory resident” that does not enter into the case) What overrides where you spend your time is a concept call domicile. Everybody has a domicile and you have to abandon the old domicile before you can say you have a new one. You can go away for a very long time and remain a state resident if you don’t change your domicile.
Revenue Department Springs The Trap
DOR Field Auditor Tina Standish wrote to Mr. DeWald thanking him for his residency declaration. I thought that the “thank you” was a nice touch. Then she reminded him that if was a Montana resident, he had to pay Montana income taxes on his income regardless of where it was earned. It is worth noting that states usually tax non-residents on income earned in that state and give their residents credit for tax paid to other states. Of course, Wyoming, as it happens, does not have an income tax. Mr. DeWald did not respond to the thank you letter so based on his federal returns statements of account were created for the years 2007 through 2010.
Time To Change The Old Domicile
In July of 2012 Mr. DeWald registered to vote in Wyoming and obtained a Wyoming drivers license. The reason he had been using a post office box as his Wyoming address was that he had been living in his RV which a friend allowed him to park rent free. Mr. DeWald appealed the income tax assessments stating that he was not a Montana resident. He was a Wyoming resident and had been for at least 26 years.
Things did not go well for him in the appeal. He explained the contradictory information on the PTAP application by indicating that he had trouble with forms. “With her assistance we filled out that form and sent it in. But I never actually read the thing … I didn’t know that I had to be a resident.”
He indicated that he had gone to the DOR for help with the form and had been told that “everything on that has to be Montana”. He thought the DOR employee who helped him should have stopped him from doing the PTAP because he had indicated he lived and worked in Wyoming.
Apparently the federal return that he attached to the PTAP should have had his mom’s name on it.
It Does Not End Well
The judge wasn’t buying it.
There is one part of the decision that I found pretty interesting.
Mr. DeWald claims to have difficulty reading and completing forms due to a short attention span. He states in several places that he never read the form applying for PTAP assistance and cites others as completing forms for him or instructing him on filling in the form.
The judge goes on to note some of the crackerjack work that Mr. DeWald did in representing himself and notes that he submitted no supporting evidence of a reading disability or vision problem. The judge then won my heart by including:
He holds a responsible job as a night auditor
On my wall hangs my plaque for being the employee of the month at the Sheraton Lincoln Inn in Worcester Mass for February 1978, where I was the night auditor. That judge really knows something. How can somebody who is a night auditor say that he doesn’t have it on the ball? If he wants people to think he is clueless, he should have said he was the general manager.
Given the amount of time that he spent in Wyoming Mr. DeWald might have been able to get by the voter registration and drivers license, but the fact that he had claimed a financial benefit of residency was fatal.
Note On The Facts
As is typical in cases like this, there is significant dispute between Mr. DeWald and the revenue department about the facts. I’m just a tax blogger not an investigative reporter, so what I have told you is what the judge ended up believing. Mr. DeWald appears to think he got a really raw deal and I’m not inclined to say he is wrong, I’m not so sure he is right either. Overall I tend to think that he may have been hoist by his own petard.
Night Auditor?
In case you were wondering what a night auditor does, it happens that I am just the guy to tell you, as I was a night auditor for two and a half years. When I was a night auditor, I was always amused when European guests told me that they were checking out the next day and they wanted their bill made up. Thanks to the night auditor, everybody’s bill was made up by about 2:00 AM or so except for breakfast and phone charges. In my day the night auditor posted room and tax to every guest’s folio using the same monstrous machine that bank tellers used, with the keys changed.
The hard part was getting the receipts and charges to come to a receivable total that balanced with the previous days number. I understand the job is a lot easier now, since it is much more automated. Of course, in a smaller property (The Sheraton Lincoln Inn in Worcester Mass where I worked had about 140 rooms), the night auditor was also running the front desk , answering the phone and making wake-up calls. Interesting things happen in hotels late at night, so in terms of learning about people a month of night auditing is probably worth a year or two in public accounting.
About The Monkey Trap
I found this youtube video that illustrates the monkey catching principle, although I will not vouch for its authenticity, but sadly it has been taken down.