Every Iowa resident must pay Iowa income taxes. A resident for income tax purposes can be identified in two ways. The first is through the establishment of a permanent home in the state, which involves spending about half the year living in the state. Alternatively, a domicile is another way to prove residence. Domicile is established through the intention of the individual to permanently or indefinitely reside in Iowa whenever absent from the state.
An individual can only be domiciled in one place at a time and once established, domicile is retained until the individual takes affirmative steps to establish a domicile in another state. In Iowa, there is a rebuttable presumption that the individual’s Iowa domicile has not changed if an individual retains the rights of citizenship in Iowa.
A change in domicile can be established through proof of a definite abandonment of the former domicile, actual removal of the individual’s physical presence to the new domicile, or a bona fide intention to change and remain in the new domicile indefinitely. At issue in a recent case was whether an individual remained domiciled in Iowa despite working in another state for several years.
The plaintiff and his family resided in Iowa for many years. In 2000, the plaintiff was transferred to a vice-president level position in his company that required him to work in South Dakota rather than Iowa. The plaintiff’s family remained in Iowa and continued to live in the home they owned and the children continued to attend the local school. The plaintiff rented an apartment in South Dakota, but maintained his Iowa driver’s license, vehicle registration, and voter registration. The plaintiff and his family purchased a new home in Iowa in 2005 and completed a Homestead Tax Credit application in 2006 to replace the existing homestead declaration on the previous home. The signed application stated that the plaintiff and his wife resided in the Iowa home and that the credit on their previous home should end.
The plaintiff received a residence questionnaire from the Iowa Department of Revenue (IDOR) in 2006. Shortly thereafter, IDOR sent the plaintiff and his wife a statement showing they owed $290,472.19 in taxes, penalties, and interest for the years 2001 and 2005 due to the plaintiff’s failure to pay Iowa income taxes. The plaintiff and his wife protested the assessment. They argued that because the plaintiff spent most of his time in South Dakota where he worked, he was not an Iowa resident.
An administrative hearing was held. The plaintiff presented evidence that he considered South Dakota his residence. He testified that he received mail, had an individual bank account, participated in charities, and received personal services, such as doctor visits in South Dakota. He also argued he did not have time to transfer his license, vehicle registration, or voter registration to South Dakota due to his work schedule.
The administrative law judge (ALJ) ruled that the plaintiff had never legally changed his domicile to South Dakota. Because the plaintiff had clearly established residency through domicile in Iowa in 2000, he retained that until he established domicile in another state. The ALJ relied on the plaintiff’s signed 2006 Iowa Homestead Tax Credit application and the retention of state rights and privileges of being an resident, such as voter registration, driver’s license, and vehicle registrations, to find that the plaintiff never established a South Dakota residency. The IDOR director affirmed. On appeal to the trial court, the court affirmed because the record contained substantial evidence to support IDOR’s position.
The plaintiff appealed again, but the appellate court affirmed. The plaintiff retained the rights of citizenship, so there was a rebuttable presumption he was still domiciled in Iowa. In order to rebut the presumption, the plaintiff established proof of several factors outlined in IDOR’s rules to establish a change in domicile. The plaintiff did establish that he attended church, received legal documents, had a checking account, received professional services and was employed in South Dakota. These factors, however, were not enough to overcome the other factors justifying a finding that the plaintiff’s residence was still in Iowa. Because the plaintiff continued to avail himself of the “rights and privileges provided to residents in Iowa,” he did not abandon his domicile in the state.
If an individual accepts employment in another state but chooses to keep his family, his home, licensing, voter registration, and property tax breaks in Iowa, the individual should expect to owe income taxes in Iowa. The responsibility to pay the taxes does not lie solely in what state the work was actually performed, but rather, in what state the individual considers his indefinite home. Schmitz v. Iowa Dept. of Revenue, No. 2-583/12-0100 (Iowa Ct. App. Sept. 19, 2012).