Since we specialize in multi-state client situations, it is no surprise that we are a bit anal about residency issues. On the heels of the UT case we posted recently comes one from Arkansas that was ruled for the taxpayers despite the lingering legal ties to Arkansas.
The case involves a couple that moved from Arkansas (a state with an income tax) to Texas (a state without an income tax) in the later part of 2012. Within one year they returned to Arkansas due to pregnancy related complications requiring family support which they did not have in Texas.
Arkansas Department of Revenue ruled that the couple never really abandoned their Arkansas domicile for the following reasons:
- Kept Arkansas drivers licenses and even had one reprinted
- Maintained homestead exemption on Arkansas property
- Continued car registration and Voter registrations in Arkansas
As the case reads, the couple did not make a lot of effort to sever their Arkansas ties but the court took notice that
- The husband took a permanent position with greater responsibility in Texas
- Enrolled their Children in School
- Were reimbursed by their employer for the move to Texas
- Commenced their pregnancy related treatments in Texas
Generally, state revenue agencies will not relinquish the right of taxation on those who do not properly sever their ties to the old state AND establish ties in the new state. Even if that is done, an absence of only a year similar to the taxpayers case will not be sufficient to claim non-residency. Its rare cases like this that the courts will intervene
We are posting the case for its instructive discussion. The case outlines many of the factors that Arkansas used to determine the domicile of the taxpayers. None of which are unusual compared to other states.
When one moves to another state, care must be taken to sever ties to the old state to avoid the risk that the old state will assess tax as if the taxpayer never left