On July 8, 2015, in the case of Cunningham v. Testa, Slip Opinion No. 2015-Ohio-2744, the Ohio Supreme Court upheld the Ohio Tax Commissioner’s assertion that a taxpayer was subject to Ohio income tax even though the taxpayer had an abode outside of Ohio, did not have more than 182 contact periods in Ohio, and had timely filed an Affidavit of Non-Ohio Residency / Domicile. During 2008 (the year in question), Kent Cunningham (a long-time resident of Ohio) had applied for the homestead exemption on his Ohio residence, used his Ohio address to receive mail, held an Ohio driver’s license, and voted in Ohio. Based on these common law factors, the Court found that Mr. Cunningham had made a false statement on his Affidavit when he claimed not to be domiciled in Ohio, and as a result of his false statement, was presumed to be domiciled in Ohio.
Presumption of Domicile For Purposes of Ohio Income Taxation
Ohio generally imposes an income tax on all income earned by a resident. For Ohio individual income tax purposes, a "resident" is an individual who is domiciled in Ohio. Prior to 1993, a taxpayer’s domicile was determined based on a common law facts and circumstances test developed under case law. In 1993, in an apparent attempt to eliminate the uncertainty of the facts and circumstances test, the Ohio legislature enacted a bright-line test for purposes of determining domicile. Under the bright-line test of ORC Sec. 5747.24 (as amended in 2006), an individual who during a taxable year has no more than 1821 contact periods (e.g., overnights) in Ohio and who during the entire taxable year has at least one abode outside Ohio, is presumed to be not domiciled in Ohio for a taxable year if the individual timely files a statement (e.g. the Affidavit of Non-Ohio Residency / Domicile) verifying that during the taxable year, he was not domiciled in Ohio and had at least one abode outside Ohio. The statute provides that the presumption that an individual was not domiciled in Ohio is irrebuttable unless the individual fails to timely file the statement or makes a “false statement.” If the individual fails to file the statement or makes a “false statement,” the statute provides that the individual is presumed to have been domiciled in Ohio the entire taxable year. An individual can rebut a presumption of domicile only with a “preponderance of the evidence to the contrary.”
The Cunningham Case
Kent and Sue Cunningham were both born, raised, educated, and married in Ohio. They had lived in Ohio for most of their adult lives. By 2008, the Cunninghams had retired and owned two residences – one in Cincinnati, Ohio and one in Tennessee. Mr. Cunningham filed an Affidavit of Non-Ohio Residency / Domicile for 2008 on which he indicated that he was domiciled in Tennessee.
In their brief to the Court, Mr. & Mrs. Cunningham conceded that they were “common law domiciliaries of Ohio during the 2008 tax year.” They argued, however, that the enactment of the bright-line statute “abrogated the common-law principles of domicile” and that as a consequence “the General Assembly did not intend to permit a finding that a taxpayer filed a false statement merely because other evidence shows that the taxpayer meets the common-law criteria for domicile.” According to the Cunninghams, “the statement required under R.C. 5747.24(B) is false only if the taxpayer does not meet the statutory requirements for the irrebuttable presumption of a non-Ohio domicile.”
The Ohio Supreme Court disagreed with the Cunningham’s position. In its majority opinion, the Court observed that “the domicile statement itself asks for a declaration not only of contact periods and an abode outside Ohio; it also asks, on a separate line, for a declaration that the individual was not domiciled in Ohio during the tax year in question.” The Court therefore concluded that “a statement verifying non-Ohio domicile can be false if it is not supported by the common law of domicile.”
Post-Cunningham Residency Considerations
Hopefully, the Ohio legislature will take action to reverse the Court’s holding in the Cunningham case and eliminate the impact of common law facts and circumstances in determining a taxpayer’s residency status. In the meantime, however, the Court’s decision empowers the Ohio Tax Commissioner to use common law facts and circumstances to challenge a taxpayer’s claim of non-Ohio residency. Taxpayers who have filed an Affidavit of Non-Ohio Residency / Domicile in the past or who are planning to file the Affidavit for the 2015 tax year should be mindful of the fact that several of the common law facts and circumstances (i.e., the claiming of the homestead exemptions, use of an Ohio address on a tax return, being registered to vote in Ohio, holding an Ohio driver’s license, having vehicles registered in Ohio, etc.) are easily accessible by the Ohio Tax Commissioner and could be used by the Tax Commissioner to issue assessments against them. Before giving up Ohio registrations and licenses, however, taxpayers should contact legal counsel regarding their eligibility to obtain registrations and licenses outside of Ohio. Each state has its own definition of domicile and most states require individuals applying for registrations and/or licenses to represent, under penalties of perjury, that they are domiciled in or residents of the state to which they are applying for the registration / license.
For questions about Ohio residency status, please contact Natalie Takacs at ntakacs@meadenmoore.com or 216-928-5413.
1In March, 2015, the Ohio legislature increased the number of permissible contact periods from 182 to 212.
