Who Qualifies as a Resident of Minnesota?: The Factors Considered to Determine Domicile

This is the third article in a series dedicated to the rules regarding who qualifies as a “resident” of the State of Minnesota for tax purposes. Status as a resident of Minnesota is important as all Minnesota residents are subject to Minnesota individual income tax, gift tax, estate tax, and sales and use tax. Non-residents are usually not subject to these taxes unless they purposely avail themselves of Minnesota taxes.

This article provides a brief discussion of the twenty-six factors in Minnesota Rule 8001.0300, subpart 3 the courts consider when evaluating whether an individual is a “domiciliary resident.” We will discuss other ways a person can qualify as a “resident” of Minnesota in future articles.

The twenty-six factors stated in Minnesota Rule 8001.0300, subpart 3 are intended to assist the court in ascertaining whether a taxpayer intended to change his or her domicile to a state other than Minnesota. No one factor determines whether a taxpayer is domiciled in Minnesota. Also, a taxpayer cannot “add up the score” to demonstrate they intended to change their domicile.

The Minnesota Department of Revenue (MDR), in Income Tax Fact Sheet 1, Residency, breaks down these twenty-six factors, and other factors, into subcategories. Though this fact sheet does not have the force and effect of law, it is helpful for understanding what the MDR evaluates in a residency audit. The twenty-six and other factors, as they are categorized in the MDR’s Residency Fact Sheet, are:

Property Ownership and Residence. Factors include: location of domicile in prior years, the location of real property owned, where mail is received, the status of a former residence, whether real property is classified as “homestead,” the amount of time spent in Minnesota, and status of insurance information.

Financial Data. Factors include: the location of bank accounts (especially the most active account), location of transactions with other financial institutions, where the taxpayer qualifies for or receives unemployment compensation, the address listed on tax returns, whether a taxpayer files his or her tax return as a resident or non-resident, the location of employment, and classification of employment as permanent or temporary.

Licenses and Registrations. Factors include: where the taxpayer registers to vote and votes, driver’s license state, where vehicles are registered and garaged, hunting and fishing licenses purchased, and where the taxpayer has professional licenses.

Affiliations. Factors include: the location of fraternal, social, union, or athletic memberships, where the taxpayer worships, and where a taxpayer’s professionals (accountants, lawyers, doctors, etc.) are located.

Higher Education. Factors include: status as a student, where the taxpayer qualifies for in-state tuition, and where the taxpayer’s children or spouse attend school.

Family and Dependents. Factors include whether the taxpayer can be claimed as a dependent of a person domiciled in Minnesota or another state, and where the taxpayer’s spouse or dependents reside.

Not all of the twenty-six factors are equal. The current trend with the MDR and the courts is to place significant weight on the “physical presence” factor; i.e. how much time a person spent in Minnesota compared to the state in which the taxpayer is claiming domicile. The MDR and the courts are seemingly placing less weight on the “licenses and registration” factors when the physical presence factor favors domicile in Minnesota. In addition, the MDR and the courts will often compare the value of real and personal property owned in Minnesota with the value of real and personal property owned in the state of claimed domicile.

This article provides a basic discussion of the factors the twenty-six factors in Minnesota Rule 8001.0300 and other factors the MDR and courts consider when determining domicile and current trends in recent court decisions. Please watch for future articles explaining other ways an individual can be a “resident” of Minnesota.