William Kania is an 80-year old certified public accountant who owns a 52% interest in a Pennsylvania accounting firm. He has owned his Pennsylvania home for the past 46 years. In 1982 Kania bought a second home in Florida and ever since has spent part of each year in Florida and part in Pennsylvania. Kania claimed that in 1998 he changed his domicile to Florida. The Tax Bureau responsible for collecting the local income taxes imposed by the Township and School District in which Kania’s Pennsylvania home is located disagreed and determined that he owed local income taxes for the years 2001-2005 of approximately $14,000 which, with accrued penalties, had grown to approximately $31,000. The Pennsylvania law that permits local governments to collect income taxes provides that those taxes may be imposed only on a person domiciled in Pennsylvania.
A trial was held in the Court of Common Pleas for Fayette County. Kania testified that he spends 55% of the year in Florida, 35% in Pennsylvania and 10% travelling. Generally, he and his wife go to Florida in October and remain there until the following May. However, they return to Pennsylvania for Thanksgiving and Christmas to spend time with their family. Between June and October they go back and forth between Florida and Pennsylvania. Kania provided the Trial Court with a copy of his Florida voter registration card which was dated in 1998. He testified that he voted in every election in Florida since 1998 and had not voted in Pennsylvania since 1997. He testified that he has two vehicles that are registered in Florida, has a Florida driver’s license, uses his Florida address on tax filings and maintains his bank accounts in Florida. Kania also testified that he serves on many professional, political and charitable boards in Florida which he has done since 1998. By contrast, he resigned from many Pennsylvania boards, including several local municipal authorities in Fayette County, in 1999. Kania works for his Pennsylvania-based CPA firm from Florida, which is the address shown on his business cards, and he has been a member of the Florida Institute of CPAs since 2001. Because the CPA firm is located in Pennsylvania, Kania has continued to file Pennsylvania state personal income tax returns reporting his share of the profits earned from that business as Pennsylvania source income earned by a nonresident of Pennsylvania.
The Trial Court ruled that Kania changed his domicile to Florida prior to 2001 and the Tax Bureau appealed to Commonwealth Court. A three-judge panel of Commonwealth Court distinguished Kania’s case from another 2012 case, Hvizdak v. Commonwealth. Hvizdak was born and married in Pennsylvania and maintained a home for his wife and family in Pennsylvania where his two minor children attended school. Hvizdak claimed that in 2003 he changed his domicile to Florida where he also owned a home. He was not separated or divorced from his wife and he provided the entire support for his wife and children. His domicile change claim was denied even though he owned a house in Florida, held a Florida driver’s license, had registered to vote in Florida, and had joined a number of social organizations in Florida. The fact that Hvizdak had more than $24,000,000 of income in 2004, the year following his claimed domicile change, may have had some influence on the Court’s decision that he did not prove an intention to change his domicile from Pennsylvania to Florida.
The law that authorizes local governments to impose an income tax provides that domicile is the place where a person lives and has a permanent home and to which the person has the intention of returning whenever absent. The Tax Bureau argued in Commonwealth Court that the Trial Court was wrong because of Kania’s practice of returning to his home in Pennsylvania after his absences and that his evidence did not prove a change in his state of domicile. Commonwealth Court ruled that Kania’s testimony and the documentary evidence he provided amply supported the Trial Court’s finding, concluding that he proved his case by showing that he lived in Florida the majority of the time, changed his voter registration in 1998, voted in every Florida election since 1998, resigned from the boards of numerous Pennsylvania authorities and became active in a number of Florida organizations. The Court noted that unlike Hvizdak, Kania and his wife live together in Florida. Southwest Regional Tax Bureau v. Kania, (July 26, 2012).
Proving a change in domicile for a person who continues to maintain a home in the state in which he claims he is no longer domiciled is always an uphill task. Here, it appears that Kania came across as a believable witness who was not claiming a change in domicile to avoid paying tax on a large one-time gain. Taxpayers claiming a change in domicile for the year of or after a large one-time gain generally find that hill to be steeper than it was for Kania because they cannot show a long-term history in their claimed state of domicile.