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Continued: Minnesota's wealthy caught in a tight tax net over residency

  • Article by: ADAM BELZ , Star Tribune
  • Last update: April 16, 2014 - 11:30 AM

A cautionary tale

But the burden in court is on taxpayers to prove their residency in another state if the Department of Revenue disagrees, and the department pointed to the “locus” of Larson’s life, arguing in great detail that it was in Minnesota, not Nevada.

Even though he didn’t spend 183 days in Minnesota any of those years, Larson spent more time in Minnesota than in Nevada, and more time in Mexico than Nevada as well. The sale of his dealerships in Minnesota and Wisconsin fell through, and he was never able to buy the Nevada dealership.

Revenue officials pointed to Larson’s continued business dealings in Minnesota, his several properties and registered vehicles here and the fact that most of his attorneys, accountants, doctors and real estate agents were in Minnesota. They looked at his bank accounts, determining his Minnesota accounts were the most active. He received mail in Minnesota and frequently visited his children and grandchildren here. Even seeking medical care in Minnesota counted against his case.

“When a person avails themselves of the many services, benefits, and protections afforded by Minnesota,” Judge George Perez wrote, “in return, Minnesota requires that person to contribute to the costs associated with providing those services, benefits, and protections by taxing that person as a resident of Minnesota.”

Appeals of the decision wended their way through court for years, but the Supreme Court in 2013 affirmed the Tax Court ruling.

Another case that showed the difficulty of switching residency was that of Kenneth Mauer, an NBA referee and cousin of Twins catcher Joe Mauer, who tried to establish residency in Florida in 2003. Mauer lost in Supreme Court last spring when justices decided he spent more time at his home in Afton than his townhouse in Fort Myers, Fla.

Shea said the Larson case has already had an effect on professionals who work for wealthy clients. Lawyers in Florida and Arizona are using the case to argue that clients should drop their lawyers in Minnesota, since Larson’s professional connections counted against him.

“Clients have fired us,” Shea said. “Frankly I can’t argue with them. It’s unfortunate that we’re losing that client, but it’s one of the factors that the Department of Revenue considers.”

 

Adam Belz • 612-673-4405 Twitter: @adambelz



 

  • related content

  • Attempting to establish residency elsewhere — especially in such states as Nevada, Texas and Florida that have no income or estate tax — is not a new strategy for wealthy Minnesotans. In this photo, members of Florida's Pass-A-Grille Shuffleboard Club --primarily made up of people from other states -- await their turn.

  • No individual state income tax

    Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire, Tennessee tax only dividend and interest income.

    WHAT THE DEPT. OF REVENUE CONSIDERS

    If a person spends more than 183 days in Minnesota (any part of a day counts as a full day), and owns, rents or occupies a Minnesota home equipped for year-round living, they are considered a resident. But passing that test doesn’t guarantee a person will no longer be considered a Minnesota resident. Here are a few other things the Department of Revenue considers:

    • The address where their mail is received

    • Present status of their former living quarters (sold, rented, etc.)

    • Information provided to an insurance company about a person’s residency

    • Locations of bank accounts

    • Location of voter registration

    • State that issues a driver’s license

    • Where vehicles are registered

    • Where vehicles are kept

    • Where professional licenses are maintained

    • The location of fraternal, social or athletic memberships

    • Location of union memberships

    • Location of place of worship

    • Where a taxpayer’s children or spouse attend school

    • Where a spouse or dependent resides

    highest TOP income tax brackets

    State Rate Income Bracket

    California 12.3% >$508,500

    Hawaii 11% >$200,000

    Oregon 9.9% >$125,000

    Minnesota 9.85% >$150,000

    Iowa 8.98% >$68,175

    Note: Brackets are for single taxpayers, and tax structures vary by state

    Source: Tax Foundation

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