Part time Minnesota residents were dealt a swift blow last week when the state Supreme Court handed down an opinion that will have chilling implications for Minnesotans trying to escape the tax climate. By a 4-3 vote (with Justice David Lillehaug writing for the majority), the court reversed a state tax court decision that said that residency could be determined by days – even partial days– spent in Minnesota by those claiming to be nonresidents. The Minnesota Department of Revenue (who argued to overturn a tax court decision) said that “a person can claim residency elsewhere but the clock starts ticking if 183 days or more are spent in Minnesota in a given year and that person keeps an abode in the state.”
Justice David Stras who penned the dissenting opinion, correctly stated that “’the majority mixed and matched’ elements from the law’s two definitions of a resident and “that the court’s new interpretation could limit or even eliminate part-time resident status for many eligible taxpayers.” Stras went even further in his dissent by saying that clarifying this law was a job for the legislature not the courts and that “[S]uch an outcome could hardly have been what the Legislature had in mind” when they wrote the law and established 26 factors that are used to determine residency.
This decision has rightfully drawn a great deal of attention from current and former Minnesota residents – the later afraid that they’ll be audited next now that the courts have empowered the Department of Revenue by allowing them to count the number of partial days homeowners are in the state – even a lake home.
This chilling decision can cost former Minnesotans hundreds of thousands of dollars since the state can now “count and combine days that a taxpayer spends in Minnesota” in their effort to determine if you’re a resident of the state. Justice Stras correctly said that this ruling could eliminate part time residents of the state, thus driving even more job creators and retirees out of the state in an effort to avoid paying income taxes now and estate taxes later.
Ambiguous laws like this one require a careful and swift correction by legislators. There is already widespread agreement among House and Senate committee members that a tax bill needs to be finished and signed into law during the short 2016 session. Clarification of residency requirements would be a terrific addition to the tax bill and one that would send a strong signal to those part time residents that they’re still welcome in Minnesota.