It is a big interconnected world we live in. Some of our taxing concepts, though, are better suited to a time when we were less mobile. State income taxes are an example. Generally states want to tax individuals on what they earn in that state. In addition, they want to tax their residents on their world-wide income (typically with a more or less limited credit for what they paid other states). If your life is less boring than mine, it can sometimes be less than clear what state you are a resident of. That was the problem that recently brought Mark and Joan Sinnard to the Montana State Tax Appeal Board.
Mr. Sinnard spent his career working for the 3M Corporation. He had several foreign assignments. Until 2002 the couple maintained property, voter registration and tax filing with Minnesota, but spent summer vacations in Montana. In 2002 Mr. Sinnard was assigned to Texas. The couple purchased a home in Texas and obtained Texas drivers licenses and voter registration. It appears though that they were planning to retire in Montana, where they already owned some property, after one more foreign assignment to Singapore which started in 2004:
In 2004, the Sinnards purchased additional land in Montana near Wilsall. They built a cabin on the property which they leased. They filed non-resident Montana tax returns reporting the rental income on their two properties. The Sinnards registered two vehicles in Montana which they kept at the Wilsall property.
In 2004, Mark was reassigned to Singapore. The Sinnards sold their Texas home when they moved abroad. They vacationed in Montana and obtained Montana driver’s licenses. They also registered to vote in Montana. In Singapore, the Sinnards obtained Singapore drivers licenses, filed resident tax returns and US federal tax returns. They continued to file nonresident Montana tax returns reporting the income from their rental property and Minnesota income tax returns reporting the income Mark earned when assigned to corporate headquarters in that state. In 2005, Mark purchased a Montana resident conservation hunting license, attesting that he was a resident of Montana and using his Montana driver’s license to substantiate his residency. The Sinnards reported that they maintained a home in Wilsall, Montana, in their federal tax returns for 2006, 2007, and 2008. In 2006, 2007, and 2008, Mark again purchased a resident conservation hunting license, attesting that he had been a Montana resident for two, three or four years, respectively. In 2008, the Sinnards voted by absentee ballot in Park County, Montana.
In 2010, the Sinnards received and completed a residency questionnaire sent by the DOR. The form, completed by Joan in Mark’s absence, stated that they claimed Montana as their residence since 2005. Joan explained on that form: “Mark had a temporary assignment in Singapore. Joan and Abby accompanied him. However, Montana is/was still considered our residency. Due to Mark’s employment with 3M in MN, he had to file a MN tax return however he did not live there. All business in U.S. was as a MT resident. No legal residence in Singapore — only MT.” Joan testified in the ODR hearing that she was uncertain about the meaning of the terms resident and residence in the questionnaire.
In 2009, Mark retired from 3M and the Sinnards relocated to their Wilsall property, upgrading it for permanent residency. The DOR informed the Sinnards in 2010 that they were determined to be Montana residents for the tax years 2005-2008 and requested that they file tax returns for those years. The Sinnards disputed that by filing a letter from their tax accountant explaining their circumstances.
The Court held for the DOR. They placed a very heavy emphasis on the voter registration, but the statements made to obtain the resident hunting license was also rather damaging. Just for fun I tried to figure out how much he saved, but there are a lot of different options when it comes to hunting licenses in Montana. What ever it was, it was probably not enough to cover the extra income taxes the couple will be paying for the four years in question. You cannot tell how much that is from the case. I have not run into Montana returns in my career. A quick look without much study makes it look middle of the road. It follows federal income pretty closely and has a top rate just short of 7%. Possibly with the benefit of the foreign earned income exclusion and the credit for whatever they paid Minnesota, the tab will not be overwhelming. It strikes me that it was avoidable.
This case is very unusual in that residency cases are usually about states trying to hang onto somebody they already have, at least for a little bit longer, like Robin Ingle, who ended up paying a quarter million dollars to New York], because her boyfriend was too busy to help her move in April causing her to wait until July. Montana got the Sinnards in 2009, but then decided it should have had them sooner. An American living overseas has the right to vote and can exercise it through the last state where they lived before going abroad. So even though they were not going back to Texas, they could still have obtained absentee ballots based on their last address. If they were shoving off from California or New York, there would be a reason to hesitate on that strategy, but Texas does not have an income tax. Another error was just filling out the residency questionnaire without consulting a tax professional. Of course, it would have been even better to have consulted one before registering to vote in Montana.
The Montana tax residency statute is clear: when a person claims a residence within Montana for any purpose, then that location is the person’s residence for all purposes unless there is a specific statutory exception. Section 1-1-215(2), MCA. There is no relevant statutory exemption in this matter. The evidence shows the Sinnards claimed a residence within Montana for several purposes. Further, the evidence is sufficient that the residency requirements are clearly stated for those who apply for voter registration and hunting/fishing licenses that we find it to be the intent of the Sinnards to be residents of Montana as demonstrated by their filing those applications with the state of Montana. We conclude the statute is controlling and find that the Sinnards are residents of Montana. While it is unfortunate that they neglected to pay income tax, their residency required that they do so.
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Originally published on Forbes.com on August 15th, 2012