Monday, January 20, 2014

Latest Domicile Case from Chief Administrative Law Judge

At the end of October, Alabama's Chief Administrative Law Judge Bill Thompson issued a Final Order voiding certain income tax assessments against a taxpayer who claimed to no longer be domiciled in Alabama.  This despite the fact that the taxpayer had most recently renewed his driver's license in Alabama, still returned to visit family in Alabama, and provided little evidence to demonstrate he had established his permanent state of domicile somewhere other than Alabama.  The taxpayer's only evidence on that issue appeared to be (1) that he had lived in various apartments in Missouri and Washington for the past several years, and (2) was contracted to work in Missouri through 2014.  Read the entire Final Order HERE.

The ruling comes as a bit of a surprise given what appears to be sparse evidence of the establishment of a new domicile presented by the taxpayer and in light of some previous decisions on the issue from Judge Thompson.  In the past, Judge Thompson has held "In order to change domiciles from Alabama, a taxpayer must abandon Alabama, and also establish a new domicile elsewhere with the intent to remain permanently, or at least indefinitely.  The burden is on a taxpayer asserting a change of domicile to prove that a change of domicile has occurred.  The presumption is in favor of the original or former domicile, as against a newly acquired one."  Duncan v. Alabama Department of Revenue, Admin. L. Div., Docket No. INC. 09-300 (November 16, 2009).

While the taxpayer in this case might be able to make an argument that he abandoned Alabama as his domicile, it would appear from the facts in the Final Order that he failed to satisfy the second part of the test, the establishment of a new domicile elsewhere with the intent to remain there permanently, or at least indefinitely.  In the past, Judge Thompson has sometimes taken a more rigid position on that prong of the two-part test.  See Henry Cobbs v. Alabama Department of Revenue, Admin. L. Div., Docket No. INC. 06-528.

Unfortunately for taxpayers in Alabama, there is no black and white rule on this issue.  The two prong test is highly subjective and taxpayers who are faced with this issue are advised to make certain they take substantial steps to not only demonstrate their abandonment of Alabama as a state of domicile, but also to establish a new state of domicile.