Residency issues perhaps cause the most grief for the Franchise Tax Board (see the Gil Hyatt case for example). The standards are subjective, and in many instances it is a difficult judgment call. Criteria and indices used by the FTB to strongly support residency in one case will not be considered important in another.
For example, where a person registers to vote, has a driver's license and registers a vehicle will be used by the FTB to argue for California residency when the three factors favor California. However, in two appeals before the Board of Equalization on August 24, both taxpayers were registered to vote in Nevada, had Nevada drivers' licenses and had vehicles registered in Nevada. These criteria were not considered to be major factors in the FTB's position that they were California residents.
Even in these cases, the FTB found a different residency result using common criteria. In the Appeal of Brent and Viki Lee Welling, the FTB placed great weight on the fact that the Wellings spent more time in California than Nevada, and argued that they were California residents. In another case, the Appeal of Christopher and Catherine Hadsell, the FTB admitted that the taxpayers spent more time in Nevada, but argued that they still were California residents.
In the Hadsell case, the FTB argued for California residency because the couple came back to California and stayed in their former home in Belmont for a month when Mrs. Hadsell had a baby. The FTB said the change of domicile did not occur until after the baby was born. The Hadsells said their visit was "temporary," as Mrs. Hadsell wanted to continue to use the services of her doctor, and a hospital was close by. In the couple's new hometown of Incline Village, she would have been required to drive over a difficult highway over the Mt. Rose summit to Reno to reach a hospital.
The FTB also argued that the couple's continued use of brokerage and insurance services in California was evidence of residency. (CalTax: Discouraging the use of California services could have a chilling effect on the California business climate. As the word gets out about this position, non-residents will be less likely to use California business services, causing a much larger revenue loss than the amounts at issue in these cases.)
In arguing that the Hadsells were California residents who thus owed income taxes here, the FTB argued that the couple did not cancel their voter registration in California. One BOE member noted that people are not required to notify the registrar of voters when they move, and no one does.
The Hadsells said four different FTB staffers had handled their case, which involved the tax year 2000 (more than 10 years ago). They said the staff inflated California evidence, created data "out of whole cloth," and committed more than 500 errors.
The board voted 3-2 (Yes: Board Member Michelle Steel and Acting Member Barbara Alby; No: Board Chair Betty Yee, Vice Chair Jerome Horton and Deputy State Controller Marcy Jo. Mandel, representing Controller John Chiang) against Ms. Steel's motion finding that Nevada domicile was established in February. Ms. Yee said domicile is not changed when there is an intent to return. Ms. Alby argued against that view, and said there is a difference between an intent to return temporarily (for delivery of a baby) and an intent to return permanently.
Mr. Horton concluded that May 12, when the taxpayer closed a California checking account, should be the date California residency ended.
With the defeat of Ms. Steel's motion, Ms. Yee asked for the case to be put over to get board staff briefing of all court and board decisions on residency. She said she wants consistency.
In the Welling case, Brent Welling, who was a distinguished professor of engineering at San Jose State University, said he and his wife moved from Aptos to Incline Village because a big resort was built near his Aptos home and destroyed the ambiance of the location. At issue were tax years 1998, 1999 and 2000 (again, more than 10 years ago!).
Mr. Welling said he found a new home in 1995 and resigned his teaching position in May of 1996. By the end of 1996, the Wellings had:
· Registered to vote in Nevada (their voter registration applications listed their new home as their place of residence, and listed an Incline Village P.O. box as their mailing address);
· Obtained Nevada drivers' licenses. Nevada DMV records show that they used an Incline Village P.O. box as their address;
· Obtained hazard insurance on the Incline Village home (the declarations page of the insurance policy listed the Incline Village home as the covered property, but the Aptos home as their mailing address);
· Opened a checking account in Incline Village;
· Registered their automobiles in Nevada;
· Surrendered their California drivers' licenses;
· Established a checking account at a bank in Incline Village;
· Notified creditors, magazines, and friends of their change in address;
· Had the post office forward mail to Incline Village; and
· Had a resident Nevada fishing license and a non-resident California fishing license.
Mr. Welling also was elected to the Incline Village homeowners' association.
The FTB argued that the Wellings maintained their Aptos home, made purchases in California, paid for pet-related expenses in California and spent more time in California than Nevada.
The Wellings stated that they came back to California to be with their daughters when they were pregnant, and to care for a daughter who was undergoing chemotherapy. They also stayed in San Diego for 29 days in 2000 to be with a close friend dying of cancer and to arrange for his funeral.
The FTB also emphasized that the couple had strong reasons to come back to California; namely, strong family ties that caused them to return frequently to be with their children and grandchildren. The Wellings' counterargument is that their children are adults who can choose to live where they want, and since they live in California, that is where they go to visit them. They said if their children lived in Nebraska, frequent visits there would not make them Nebraska residents.
As it did in the Hadsell case, the board postponed a decision on this case until a future meeting, after a briefing from its staff on cases on residency.
Cal-TaxReports, August 30, 2010
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