The State of Minnesota imposes both income taxes and death taxes. This article will briefly examine the issue of residency for purposes of state-level income tax. Part 2 will look at state-level estate taxes (also known as “death taxes”) imposed on the taxable estate of a decedent.
Most people believe that if they live in Florida for more than half the year (6 months and 1 day), they will no longer have to pay income tax in Minnesota. Unfortunately, it is not that simple. Whether an individual is subject to income tax in Minnesota is tied to the taxpayer’s residency.
Residency refers to the location of your permanent residence. Minnesota has three categories of residency: residents, nonresidents, and part-time residents. A personal income tax is imposed on the entire net income of residents of the State. Nonresidents may still be subject to tax; they are subject to tax on the portion of their income that is derived from Minnesota sources, meaning income being generated by property or activities located in Minnesota, including business income and rental income, even if that income is received by the person while he or she is living outside the state. Part-year residents are subject to tax on their entire net income while a resident and the portion of income derived from Minnesota sources while a non-resident.
So how are each of these categories determined? Let’s look first at whether you are a resident.
Minnesota considers full-year residency under two tests:
- The Domicile Test
- The 183-day Rule
The Minnesota Department of Revenue considers both words and actions in determining residency, with actions carrying more weight than words. The Department of Revenue only has to determine you meet one of the two tests, not both.
- The Domicile Test (also known as the intent-based test)
In Minnesota, a domiciliary (a person who is “domiciled” in Minnesota) is taxable for purposes of income tax. Domicile requires both:
- physical presence, and
Physical presence is satisfied when a person maintains a permanent residence in the state. Intent is satisfied when the person intends to make that residence their permanent home for a fixed or indeterminate period of time. In order to change your domicile, you must be able to demonstrate intent to make the other location your permanent home. Minnesota utilizes a non-exclusive list of twenty-six factors to determine whether an individual is domiciled in the state. No single factor determines domicile. These factors include the locations of your spouse, children, and other relationships; keepsakes; memberships in organizations; place of worship; where you attend school and whether you are charged in-state tuition in the other state; professional licenses; union membership; employment (whether permanent or temporary); real estate or other property you own; business relationships; residences, including size and value; and domicile for prior years. The Department of Revenue will also examine which state issued your driver’s license and voter identification; history of voting; address change notifications; statements to insurance companies; where fishing licenses were purchased; statements to other taxing authorities; and the address you put on other legal documents. Attorneys also recommend you change your phone number to the new, local area code (including your mobile phone), change your doctor, dentist, veterinarian, hairdresser, tailor, and so forth. The burden of proof is on you to prove you intended to, and did, change your domicile to a location outside of Minnesota.
In Larson v. Minn. Comr. of Rev., No. A12-0378 (Minn. Jan. 9, 2013), a taxpayer failed to change his domicile from Minnesota to Nevada despite purchasing and maintaining a home in Nevada, establishing a Nevada home office, registering to vote in Nevada, and obtaining a Nevada driver’s license… because other acts and circumstances of the taxpayer’s life demonstrated a continued presence in Minnesota.
If you leave Minnesota, but you plan to return to live in Minnesota, you are deemed to be a Minnesota full-year resident.
- The 183-day Rule (also known as the statutory residency or physical presence test)
Even if you have a permanent residency in another state, you nevertheless are considered a Minnesota resident for income tax purposes if you meet both of these conditions:
- You spend at least 183 days in Minnesota during the year (and any part of a day counts as a full day!);AND
- You or your spouse rents, owns, maintains, or occupiesa residence in Minnesota suitable for year-round use and equipped with its own cooking and bathing facilities (an abode). (A cabin with no heat, electricity, plumbing, and grill/fireplace would probably be uninhabitable in the winter in Minnesota, and therefore might not meet the test.)
If you meet both of these tests, you are considered a full-year resident of Minnesota for purposes of income tax. Note that your intent is irrelevant under the 183-day Rule. If you spend at least 183 days in Minnesota during the taxable year, but only spend the warm months in Minnesota in a cabin that lacks heat, electricity, or indoor plumbing, you are a part-year resident, and you are subject to tax on your entire net income for the period while you are in Minnesota, as well as the portion of income derived from Minnesota sources while you are a non-resident. In fact, even if you don’t visit that cabin at all, and even if you don’t own that cabin, but you maintain that cabin, you are deemed to be a part-year resident and you are taxable on the income for the period you maintained the abode. You can see there are traps for the unwary here.
You are also a part-year resident if you moved out of Minnesota to another location during the taxable year in question or if you moved into Minnesota during the taxable year with the intention of remaining.
It is up to you to maintain record evidence that you were not in Minnesota for longer than 182 days, and any part of any day counts. (Changing planes in the Minnesota airport does not count, however.) Adequate records are any contemporaneously kept records that establish an individual’s physical presence on relevant dates, including calendars, diaries, canceled checks, credit card receipts, and airline tickets.
If you do not satisfy both the requirements of the 183-day Rule, and you are a resident of a state other than Minnesota, you are a nonresident.
So how do you escape the long arm of the Minnesota Department of Revenue? If you are planning to move out of Minnesota to another state, Flagship Law can help you change your domicile and residence effectively and legally. Call us if you need advice.
 Special residency rules apply to foreign nationals, active-duty military, and students.