THE QUESTION OF WHETHER A TAXPAYER IS SUBJECT TO TAX in a state is complex. The answer for a company, and the facts needed to reach that answer, differs from those for an individual. In this article, we’ll review whether an individual is subject to tax as a resident. In our recent experience, this topic has generated significant controversy with the Nebraska Department of Revenue. This is particularly true when long-time residents choose to spend part of their time in the state they are moving from. We have written on this topic before and are revisiting this for two reasons. First, the question of tax residency has led, and we believe it will continue to lead, to numerous disputes between taxpayers and the Department of Revenue. Second, since there have been a number of new cases on this topic, we can identify additional factors that those courts have highlighted as important in the determination of tax residency. Understanding those additional factors could make the difference in results for you or your client. While this question applies to all states with an income tax, we are limiting our discussion here to just Nebraska. This question applies whether you are leaving Nebraska or leaving another state to come to Nebraska. NEBRASKA’S RULES ON TAX RESIDENCY As long-time Nebraskans, we never like to see people leave our great state. However, we know that many choose to leave Nebraska for a variety of reasons. Often, those people retain certain connections to Nebraska, including a second home, an ownership or leadership position with their company, or other personal or family ties. This presents a combination of facts that often confuses the question of which state is their true state of residency. Nebraska tax law establishes that a person will be deemed to be a Nebraska resident if either of two tests apply. We have called these two tests the Presence Test and the Domicile Test. Presence Test A person remains a Nebraska resident if that person maintains a permanent place of abode in Nebraska (meaning a house, apartment, etc.) and spends, in the aggregate, more than six months of the year in Nebraska. This test is the most clear-cut of the two. Either a person factually meets both conditions or they do not. Of note with this test, motivation for a person’s presence is irrelevant. Whether here for family, medical or business purposes, if a person meets both factual conditions, then they are a Nebraska resident for income tax purposes. Domicile Test A person is also deemed to remain a Nebraska resident if that person is domiciled in Nebraska. Our Nebraska Supreme Court has stated: “The question of domicile is a question of fact rather than law, frequently depending upon a variety of circumstances. The NAVIGATING THE COMPLEXITIES OF STATE RESIDENCY CRITICAL STEPS TO AVOID DISPUTES STATE TAX BRIEFING BY NICK NIEMANN AND MATT OTTEMANN, MCGRATH NORTH LAW FIRM CONTINUED ON PAGE 12 11 nescpa.org
RkJQdWJsaXNoZXIy MTg3NDExNQ==