On July 8, 2015, the Ohio Supreme Court found that Ohio nonresidents may not claim the benefit of the Ohio “bright line” presumption of nonresidency for income tax purposes if the taxpayer attests to having a domicile outside Ohio on the required Affidavit of Non-Ohio Domicile and the tax commissioner is in possession of information providing a “substantial basis” that the person is domiciled in Ohio under common law principles. For the tax years at issue, Ohio Revised Code (“R.C.”) §5747.24 provided that if a person maintains a place of abode outside the state of Ohio for the entirety of a tax year, is not present in Ohio for more than 182 contact periods (roughly an overnight period away from home), and timely files an affidavit of non-Ohio domicile with the tax commissioner, the person is irrebuttably presumed a nonresident of Ohio for income and school district income tax purposes, provided the person does not make a “false statement” in the affidavit. For tax years 2015 and later, a person may have no more than 212 contact periods in the state and retain the irrebuttable presumption.
In Cunningham v. Testa, Slip Opinion No. 2015-Ohio-2744, the taxpayer, Mr. Cunningham, argued that although his common law domicile was in Ohio, he was nevertheless irrebuttably presumed a nonresident of Ohio under the Ohio bright line presumption. Mr. Cunningham timely filed the required Affidavit of Non-Ohio Domicile for tax year 2008, which requires the affiant attest to not being domiciled in Ohio at any time during the tax year, and state where he or she was domiciled. Although R.C. §5747.24 does not require a statement of where the affiant was domiciled, this is a requirement on the affidavit form. Mr. Cunningham indicated he was domiciled in Tennessee in 2008, but in January 2008, Mrs. Cunningham filed an application for homestead exemption from property tax on the Cunninghams’ residence in Cincinnati, Ohio, and both Mrs. and Mr. Cunningham signed the application. The homestead exemption application requires the applicant to state, under penalties of perjury, that the residence for which exemption is sought is the applicant’s principal place of residence. Mrs. Cunningham had not filed an affidavit form, and her status as an Ohio resident was not contested before the court.
The Ohio Supreme Court reversed the Board of Tax Appeals, and found the tax commissioner had a substantial basis for the conclusion that because Mr. Cunningham had made inconsistent statements regarding his place of residence for 2008, there was a false statement in the affidavit, and it could be disregarded. The court concluded that “when the tax commissioner has information that furnishes a substantial basis for rejecting the claim of non-Ohio domicile and he sets forth that basis in his determination, the statute does not fail of its essential purpose of streamlining domicile determinations.” The result is that Mr. Cunningham was rebuttably presumed an Ohio resident, the Cunninghams’ concession and evidence on the record did not rebut that presumption, and the tax commissioner’s assessment was reinstated. However the court was quick to clarify that “[t]he tax commissioner would not be justified in making a false-statement finding unless he could point to specific information that warranted the finding” and limit its holding so that “the commissioner must set forth his basis for determining that the domicile statement is false…” In this instance, Mr. Cunningham was born, raised, and educated in Ohio; was married in Ohio; had lived in Ohio for most of his adult life; had his mail forwarded to his address in Ohio; held an Ohio driver’s license, and voted in Ohio in 2008.
Although this case diminishes the clarity of the bright line presumption, the presumption has not been eliminated. The Affidavit of Non-Ohio Domicile remains an important tool for a person who has changed domicile from Ohio to support the effectiveness of that change. Former Ohio residents who retain ties with the state after permanently moving to another state and who claim the benefit of the bright line presumption should be mindful of this case in managing their affairs and should take care to properly document the steps taken to change their domicile. If you have questions regarding this case or how it might apply to your circumstances, please contact your primary advisor on the BakerHostetler Tax Group.