In his recent budget recommendations, Minnesota Governor Mark Dayton proposed a drastic change in Minnesota income tax law that will affect residents of so-called snowbird states—such as Florida, Arizona, California and Nevada—who continue to maintain ties to Minnesota. Individuals most affected would be nonresidents living in states that have no income tax, like Florida and Nevada. The Governor's snowbird tax proposal, if enacted into law, would be retroactive to January 1, 2013. The Minnesota Department of Revenue estimates it would raise $30 million in additional Minnesota income tax.
The Dividing Line: More Than 60 Days in Minnesota with a Dwelling in the State
Governor Dayton's new snowbird tax proposal would impose Minnesota income tax on nonresidents if they are present in Minnesota more than 60 days but less than 183 days and maintain a home in Minnesota for at least six months. The Governor's proposal would tax these nonresidents as part-year Minnesota residents, requiring them to pay Minnesota income tax on a pro rata share of all of their income based on the number of days they spend in Minnesota. Currently, nonresidents who maintain a Minnesota home pay no Minnesota income tax if they are not present in Minnesota for at least 183 days and can prove that they are "nonresidents."
Minnesota Supreme Court Rules on Residency
A recent Minnesota Supreme Court tax case, William D. Larson, Realtor v. Commission of Revenue, A12-0378, (January 1, 2013) illustrates the difficulty of proving nonresidency. In this case, the court not only looked at the taxpayer's acts in the year of residency change but also in the years thereafter. The court ruled that "[i]n reviewing whether the taxpayer intended to change his or her domicile, we examine more than simply acts occurring at the time of and shortly after the taxpayer's physical move to another state." The taxpayer in this case moved to Nevada and did many of the right things to avoid Minnesota residency and taxation, including: (1) purchasing a Nevada condominium, (2) moving the bulk of his clothes, a sizeable wine collection, two pieces of art, and numerous other personal possessions to Nevada, (3) obtaining a Nevada driver's license, (4) canceling his Minnesota driver's license, (5) establishing a home business office in Nevada, (6) registering to vote in Nevada, (7) homesteading his Nevada residence, (8) opening a Nevada bank account, (9) registering two cars in Nevada, and (10) informing his advisors he was moving to Nevada.
Unfortunately, these acts were not enough to avoid Minnesota residency and, therefore, Minnesota income tax. In support of its ruling, the court pointed to the following facts: (1) the taxpayer spent more time in Minnesota than Nevada, (2) the taxpayer had more vehicles registered in Minnesota than Nevada, (3) the taxpayer had more bank accounts in Minnesota than Nevada, (4) the taxpayer had his mail delivered in Minnesota, (5) the taxpayer had significant personal and professional connections in Minnesota, and (6) the taxpayer continued to have a personal assistant in Minnesota. On balance, the court concluded that the taxpayer was a Minnesota resident subject to Minnesota income tax.