MN Supreme Court deals financial blow to part-year residents

Under Minnesota tax law, if you spend more than 183 days in the state in a year and you have a home here, you’re a full-time resident of Minnesota, with all the tax implications that come with that rule.

In a decision today that split its liberal and conservative wings, the Minnesota Supreme Court reversed a short-term victory to a wealthy Lake Minnetonka couple, who moved back to Minnesota in 2007 and were ordered to pay $650,789.38 in taxes as full-year residents under the law.

In 2014, the state’s Tax Court sided with Curtis and Stacy Marks, who had argued that only the number of days someone is in the state as a non-resident should count when calculating the 183 days.

It’s a case that has been watched closely by the state’s most wealthy snowbirds and part-year residents because how that figure is calculated can be tens of thousands of dollars in taxes, particularly for people who spend part of the year in the no-income-tax states like Florida.

Justice David Lillehaug acknowledged that the Marks’ contention that “an individual whose domicile changes during a tax year is only a ‘resident’ for the full year if that individual both maintains an abode in the state and spends at least 183 days in Minnesota while domiciled in another state” is a reasonable one. But he also said the state’s position is reasonable, too. (See opinion – pdf)

“Under the Commissioner’s interpretation, the definition of ‘resident’ applies to all individuals who fulfill three conditions during the tax year: domicile outside Minnesota, maintenance of an abode in Minnesota, and physical presence in Minnesota for more than half the tax year,” he said.

Acknowledging the law is ambiguous, Lillehaug and the majority nonetheless ruled that because the Markses owned a home here and spent 70 percent of the year in Minnesota “they enjoyed those services, benefits, and protections as much as or more than any non-domiciliary who spent 51 percent of the year in Minnesota.”

“If an individual maintains an abode in Minnesota while domiciled outside the state, all days the individual spends in Minnesota that year—whether as a domiciliary or not—can be aggregated to determine whether the individual is a full-year resident,” Lillehaug wrote.

In his dissent, however, Justice David Stras noted the Markses didn’t buy a house here until August 2007, and any days spent here prior to that shouldn’t count toward the 183-day calculation.

“Rather than recognizing the requirement that an individual must be domiciled outside of the state for the day count to matter, the court essentially adds a day-count requirement to the definition of domiciled residents in order to allow the Commissioner to count and combine days that a taxpayer spends in Minnesota as both a domiciled resident and as a non-resident,” Justice Stras argued.

Stras said the court’s opinion may eliminate — or at least limit — part-year-resident status for many eligible taxpayers.

“Under the court’s analysis, the Commissioner of Revenue can treat the taxpayer as a full-year resident of Minnesota, even if the taxpayer had no contact with Minnesota prior to buying or renting the abode,” said Stras, who was joined in his dissent by two other conservative members of the court, Chief Justice Lorie Gildea and Justice G. Barry Anderson.