Main Menu Main Content
Noonan’s Notes Blog

About This Blog

Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.

Contributors

Timothy Noonan 
Ariele Doolittle
Joseph Endres
Daniel Kelly
Elizabeth Pascal 
Craig Reilly
Andrew Wright 

Leave the Attorneys & Accountants Out of It: Minnesota Department of Revenue Tweaks Domicile Rules for Individual Income Tax Purposes

By on

Just an observation from the cheap seats about a recent notice issued by the Minnesota Department of Revenue (DOR) (Revenue Notice No. 19-05, referred to as Notice 19-05). This notice clarifies that neither the DOR nor the courts can consider the location of the individual's attorney, CPA, financial adviser, or the place of business of a financial institution where the individual opened or maintained an account for purposes of establishing whether an individual is domiciled in the state.

Because taxpayers pay personal income tax on income earned in the state where they reside, establishing residency and domicile is the critical first step in determining whether or not tax is owed. Determining residency depends on a person’s individual circumstances and involves weighing several factors. One of the factors in the Minnesota domicile test was previously the “location of business relationships and the place where business is transacted,” which has been interpreted in the past to include relationships with attorneys and accountants, which is kind of a bummer if you were a Minnesota attorney or accountant, since presumably it made getting clients with potential residency issues more difficult to come by!

Years ago, the New York tax department stopped doing this (thanks New York, by the way, as this would have also been a bummer for guys like me!). But changing this in Minnesota has taken some time. Based on discussions during the 2014 legislative session, the Minnesota DOR initiated a review of the residency law—both the statute and the rule—as well as the department’s application of them. Then in 2015, the DOR issued a residency report outlining changes it would make to the administration of the state tax system to make it more consistent, transparent and fair. However, legislation regarding these changes was not approved in 2015 and 2016. The Minnesota DOR issued Notice No. 16-01 instead on February 1, 2016. Notice 19-05 is a clarification that replaces Revenue Notice No. 16-01 which provided that employing, hiring, engaging, or having a business relationship with an attorney or certified public accountant whose address is in Minnesota does not, by itself, demonstrate an intent to establish or retain domicile in Minnesota. For taxable years beginning after December 31, 2016, Minnesota Statutes, Section 290.01, Subdivision 7, provides that when determining where an individual is domiciled, neither the Department nor any court shall consider the location of the individual’s attorney, certified public accountant, financial advisor, or the place of business of a financial institution where the individual opened or maintained an account.

So good for Minnesota on this. It always seemed silly to me for a state tax department to use this as a factor against a taxpayer. Not only is it bad for business, it’s also not fair to force taxpayers to use professionals in other states when planning important life events like a move to a new state.

Post a comment:

*All fields are required.

Attorney Advertising
Hodgson Russ LLP

Principal Address:
The Guaranty Building
140 Pearl Street, Suite 100
Buffalo, NY 14202
Tel: 716.856.4000
Stay Connected
RSS LinkedIn

About This Firm

Hodgson Russ attorneys facilitate the U.S. legal aspects of transactions around the world. We practice in every major area of law and use multidisciplinary work teams to serve the specific, often complex, needs of our clients, which include public and privately held businesses, governmental entities, nonprofit institutions, and individuals.