Minnesota Residency

A recent article in the Star Tribune* reminded us how difficult it can be for former Minnesotans to establish that they are non-Minnesota residents for income tax purposes. According to the article, “Most of the residency squabbles that erupt over whether someone must pay Minnesota income taxes here get settled quietly with the state’s tax collectors. When reluctant taxpayers do go to court to challenge the Minnesota Department of Revenue over where they live they typically lose. But not always.”

As your clients age and perhaps retire elsewhere, this is an important area to keep abreast of. Lawyers specializing in this area have noticed that the Minnesota Department of Revenue is now initiation more of its own audits with a residency focus rather than piggybacking on IRS audits of other issues.

The Minnesota Revenue’s Fact sheet #1 on their website describes the criteria used to determine whether someone is a Minnesota resident for tax purposes. The “183-day rule” is relied upon quite heavily. The 183-day rule depends on two conditions:

1. You spend at least 183 days in Minnesota

2. You or your spouse own, rent or occupy an abode in Minnesota (a self-contained living unit, suitable for year-round use that is equipped with its own cooking and bathing facilities).

If both conditions apply, you are a Minnesota resident for the length of time the second condition applies.

If you maintain a home in Minnesota, but claim residency elsewhere, you must keep adequate records to verify that you spent more than half of the year out of state. Records commonly include planners, calendars, plane tickets, canceled checks, and credit card and other receipts.

To change residency to another state requires the physical presence in the new location and the intent to remain there permanently or indefinitely.

Actions that the Minnesota Department of Revenue looks for to determine whether a taxpayer has changed legal residency include:

• Changing your home of record with your employer.
• Changing legal documents, such as a will or insurance policies to reflect the new legal residence.
• Applying for a driver’s license in your new state of residence and relinquishing your old license.
• Registering to vote in your new location
• Registering a car in your new state of residence.
• Applying for property tax homestead status in your new state of residence.
• Selling your home and buying a home in your new state of residence.
• Consistently using your new permanent address on records and correspondence.

The fact sheet also states that in determining residency, the Department of Revenue considers both the taxpayers’ words and actions, but their actions carry more weight than words.