Taxpayers continue to secure victories in residency cases involving the Illinois individual income tax. In the past year, taxpayers have won two favorable Appellate Court cases wherein the court ruled that the taxpayers had successfully terminated their state residency for purposes of Illinois income tax. Most recently, the Cook County Circuit Court held that a taxpayer had successfully terminated his Illinois income tax residence, despite the taxpayer’s significant ongoing business ties with the State. Edmund Sweeney v. Illinois Dept. of Revenue, No. 2010 L 050524 (Cook Cty. Cir. Ct., June 26, 2013).
Under Illinois law, the entire income of an Illinois resident (which is defined to include an individual domiciled in the State) is taxable by Illinois. By contrast, a nonresident is taxable only on income that is sourced to the State.
In this case, the taxpayer, Edmund Sweeney, had been the Managing Director and part owner of Stafford Trading, a Chicago based corporation, which was sold to TD Options, LLC, in 2002. Sweeney assumed the position as Managing Director of TD Options, which had offices in Chicago, London, New York, Philadelphia and San Francisco. TD Options incurred losses during the tax years at issue – 2002 through 2004 – and Mr. Sweeney, after moving to Florida in late 2001, was required to spend increasing amounts of time in the company’s Chicago office. The Court held that despite Mr. Sweeney’s continuing ties with Illinois, the majority of his ties began to shift to Florida in 2002, including establishment of a residence in Florida, social club memberships in Florida, and Florida business interests which generated the vast majority of the income he earned. Based on these facts, the Court ruled that Mr. Sweeney was no longer domiciled in, and therefore no longer a resident of, Illinois for individual income tax purposes.