Being on the East coast, I don’t have to deal with the complications of community property. The trials and tribulations of California registered domestic partners are amazing. This decision by the Idaho Tax Commission gives us a new wrinkle I haven’t seen before. The Commission redacted the names so I am going to refer to the couple involved as a George and Martha.
The case had started out as a domicile case. George and Martha had decided that they wanted to move to Idaho going so far as to buy a house. George’s employer really wanted to hang onto him. He received a promotion and a raise. The couple decided that George would stay in Washington (state) and Martha and the kids would move into the house in Idaho. Thanks to the redaction we can’t tell how far apart they were living (For those who are as geographically challenged as I, I can tell you that I just looked and see that northern Idaho borders Washington.
It happens that Idaho has a pretty stiff individual income tax with a top rate over 7%. It’s not New York or California, but it is still a lot more than Washington where the top rate is 0%. So George had a strong incentive to argue that even though the rest of his family might be domiciled in Idaho, he was still domiciled in Washington. The Income Tax Audit Bureau initially did not agree. They had something to go on. George had taken an Idaho drivers license. He gave them even more ammunition by applying for resident hunting and fishing licenses.
The explanation offered for the drivers license was that it was needed so that Martha could register the family car which was jointly owned. The hunting and fishing licenses were dismissed as an “Oops”. My back of the envelope computation from this site makes me think that George might have saved about $1,500 in total by getting resident licenses for three years. It would have been a real shame if that had blown the domicile case for him, which it might have in Montana. The Tax Commission ended up agreeing with George on the domicile issue:
In the present case, after reviewing the file, the Commission agrees with the taxpayers’ determination of Mr. domicile. From the information available, Mr. domicile of origin was Washington. His Washington domicile more than likely continues to this day. Mr. does return to Idaho to visit his family and did spend some time in Idaho searching for employment in 2007 but it does not appear Mr. abandoned his Washington domicile nor had intent to acquire Idaho as his domicile. Therefore, it is determined Mr. domicile is Washington.
There is a very subtle point here. Domicile is sticky. If you changed the facts just a little and imagined that George and Martha had been living in Idaho and George had moved to Washington because of a promotion, rather than staying in Washington because of a promotion, the answer may well have been different. Once you have established domicile you have to abandon the old one before you get a new one. Regardless, Idaho was not done with him.
In cases where two individuals reside and are domiciled in different states, the Commission looks at how each state treats the marital community; whether it is community property or separate property. In this case, we have an individual domiciled in Idaho, and the other, domiciled in Washington.
Both the state of Idaho and the state of Washington are community property states and both treat earnings as community property and, therefore, community income.
It turns out that Washington treats spousal earnings as separate property when a couple is living apart, but only if the separation is due to marital discord, which was not present in this case. All in for three years, Idaho ended up getting a little over $13,000 from Martha rather than the approximately $30,000, they were hoping to get from George. The moral of the story is that if you want to have your family in Idaho, work in an adjacent state and not pay state income tax – Go East young man. Wyoming does not have an individual income tax and is not a community property state. I understand the hunting and fishing is pretty good, so get your resident license there, but you will find that, at least on paper, they are real serious about making sure you are a bona-fide Wyoming resident.
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