Does This Taxpayer Meet Your Municipal Residency Requirements?

It can be difficult to determine whether your municipality is entitled to charge income tax on an individual who has, for a time, resided in the municipality. This often is in question, when a resident has recently moved due to a separation, or a temporary job, or has left for college while still using an address within your municipality as his or her permanent address. When can you charge local income tax on a “resident” who may earn income and live elsewhere?

Most municipal ordinances impose local taxes on a resident of the municipality, or a non-resident earning income for work done or services rendered in the municipality. The golden question is whether a taxpayer can be considered a resident, allowing the municipality to charge local income tax, when the resident may have a second home elsewhere. Unfortunately, there is no bright line test to determine within which municipality the taxpayer is a resident. 

In the recent case of the City of Marion v. City of Marion Bd. Of Review (Aug. 10, 2007) Board of Tax Appeals Case no 2005-T-1464, the Ohio Board of Tax Appeals (“Board”) reviewed Ohio law on this issue and the use of the word “resident”  under the City of Marion’s ordinances.  The Board looked to determine whether an individual who maintained a mailing address within the City, notably her mother’s house, and used that for her voter registration, fit the definition of a “resident” for tax purposes. Marion City Code 193.02(W) defines a “resident” as an “individual…domiciled in the municipality.” The Board noted that the words “domicile” and “residence” are often used interchangeably, but actually represent two distinct concepts in Ohio law. The Board found:

Domicile is generally defined as a legal relationship between a person and a particular place that contemplates two factors: (1) residence, at least for some person of time, and (2) the intent to reside in that place permanently or indefinitely. Hill v. Blumenburg (1924), 19 Ohio App 404, 409 citing Pickering v. Winch (1906) 48 Ore. 500; Columbus v. Firebaugh (1983), 8 Ohio App.3d 366.  Residence, which denotes the place in which one physically lives for a period of time, is embodied in the definition of domicile. The primary distinction between the two is that while a person can have only one domicile at any given time, he or she may have more than one residence. Saalfeld v. Saalfeld (1949), 86 Ohio App. 225. Moreover, once a domicile has been established, it is presumed to continue until it is shown by a preponderance of the evidence that is has been abandoned in favor of a new one. Cleveland v. Surella (1989), 61 Ohio App.3d 302; Saalfeld, supra, 226.

The purpose of a municipality’s tax statute is to impose income taxes on those who can be fairly said to either consume municipal services, or derive some benefit or protection from the municipality. To be constitutional, the local tax must bear, “some fiscal relation to the protections, opportunities and benefits given” by the municipality.  The Court will look at the acts of the person and the surrounding circumstances which may include their business pursuits and vocation. For example, in Cleveland v. Surella (1989), 61 Ohio App.3d 302, the Court held that the fact that a person has voted in a certain place, alone, does not determine residence. In Potter v. Tracy (Mar. 25, 1994) Board of Tax Appeals Case No. 1992-T-536, the Board found that the taxpayer was not domiciled in Ohio, despite owning investment property in the state and maintaining an Ohio driver’s license, when she had lived overseas for 27 years in the foreign service, and only upon her retirement expressed any intent to return to Ohio. Further, in City of Marion, supra, where the resident had worked overseas for five years, had been overseas for all but 55 days of the tax year in question, and maintained a permanent address in Marion only for mail and voting purposes, the Court found that the City did not prove that she was domiciled in the City, and was therefore not a resident subject to the City’s local tax. City of Marion v. City of Marion Bd. Of Review  (Aug. 10, 2007) Board of Tax Appeals Case no 2005-T-1464.

In order to impose local taxes on a person who lives and works outside a municipality, but who maintains what appears to be a permanent residence inside the same municipality, be prepared to demonstrate evidence that the person intends to return to the municipality. For example, where a person has moved outside the municipality during a separation, for school or for a temporary job, evidence of their intent to return may include their remaining family residing at the permanent residence, his or her children continuing to attend a local school, utility bills continuing in his or her name at the permanent address, as well as maintaining the driver’s license and voter registration at that permanent address. Additionally, review how often the person returns to the permanent residence and stays at that location. 

While there is no bright line test to determine whether a person is domiciled within a municipality, so as to be considered a resident for tax purposes, all of the above factors, when viewed together, can create a situation where a person who has taken temporary residence outside the municipality, and earns income elsewhere, may be liable to the municipality for local taxes.