Information Release

IT 2007-01 Personal Income Tax: Residency Guidelines -- Tax Imposed on Resident and Nonresident Individuals -- Issued January, 2007

This information release is to advise taxpayers of how Ohio personal income tax is imposed on resident and nonresident individuals for taxable years 2002 to 2006 (the income tax return for taxable year 2006 is due by April 16, 2007 unless the taxpayer has obtained from the IRS an extension of time to file). This information release does not apply to taxable years beginning on or after January 1, 2007.(1) (Footnoted information in this release is indicated by italics; footnotes are located at the bottom of the text.)

Who is subject to the Ohio personal income tax?

Ohio imposes personal income tax on individuals(2) residing in or earning or receiving income in this state or earning or receiving certain lottery winnings, prizes, or awards from the Ohio Lottery Commission. Each individual (or married couple who file a joint federal return) with federal adjusted gross income exceeding the amounts specified in the instructions for the Ohio individual income tax return, form IT 1040, must file an Ohio income tax return. This filing requirement also applies to nonresident individuals with income earned or received in Ohio by a pass-through entity unless the entity files a composite Ohio return on behalf of its nonresident owners. The filing requirement applies even if an individual is allowed a nonresident or resident credit under Ohio Revised Code section (“R.C.”) 5747.05(A) or (B), respectively, that eliminates most or all Ohio individual income tax.

Who is a resident?

R.C. 5747.01(I) defines a “resident” of Ohio for purposes of the Ohio income tax. A “resident” is an individual who is domiciled in this state, subject to R.C. 5747.24. A “nonresident” is an individual that is not a resident. While the tax law does not specifically define who is domiciled in this state, there is substantial case law on the determination of “domicile” for tax and other purposes.  However, Ohio Adm. Code 5703-7-16 does provide some factors that the Tax Commissioner cannot consider in making a determination of domicile.(3)

As the case law shows, an individual can have only one domicile at any given point in time. Most individuals retain their domicile throughout the taxable year, even if they spend all or a substantial portion of the year away from that domicile during the year.(4) For example, an individual who regularly spends spring and summer in Ohio and autumn and winter in Florida may be domiciled either in Ohio or Florida for the entire year, depending on what the relevant facts demonstrate, and would be away from that domicile while in the other state. The contact period test of R.C. 5747.24, discussed below, applies for purposes of determining whether or not that individual was a resident of Ohio for the taxable year. That individual has not switched domiciles back and forth between states during the year and is not a part-year resident of Ohio, but remains either a full-year resident or nonresident under the contact period test of R.C. 5747.24.

In contrast, there are situations where an individual changes domicile during the taxable year. For example, an individual domiciled in Ohio may retire and move to another state, or an individual domiciled in another state may move to Ohio for employment. R.C. 5747.01(J) provides in pertinent part: “An individual who is a resident for only part of a taxable year is a nonresident for the remainder of that taxable year.” Such an individual is a part-year resident.

Why is residency important?

Ohio imposes income tax on all income of resident individuals but only imposes tax on the income of nonresident individuals that is earned or received in Ohio. While residents receive a credit under R.C. 5747.05(B) for income subjected to tax in another state, the credit cannot exceed the tax paid to the other state on that income. In contrast, nonresidents receive a credit under R.C. 5747.05(A) to eliminate tax on income not earned or received in Ohio. So, for example, if the income is from a state that imposes no tax, a resident will get no credit but a nonresident will. However, if the income is from Ohio, both the resident and the nonresident will be subject to Ohio tax.

The contact period test

R.C. 5747.24 contains a contact period test for determining whether an individual is a resident of Ohio for purposes of the Ohio personal income tax. The test examines an individual’s “contact periods” in Ohio during the taxable year to arrive at a presumption of whether or not that individual is an Ohio resident for that taxable year. Since the test is based on contact periods (not days) during the entire year to arrive at a presumption for that entire year, it does not apply to part-year residents as previously noted.  An individual has a contact period with the state when the individual is away overnight from the individual’s abode located outside this state(5) and while away overnight from that abode spends at least some portion, however minimal, of two consecutive days in this state.  R.C. 5747.24(A)(1)(a).

For example, an individual spending any portion of two consecutive days in Ohio (e.g., portions of Monday and Tuesday) has one contact period in Ohio, but an individual spending any portion of each of two nonconsecutive days in Ohio, (e.g.,  Monday and Wednesday, but not Tuesday) has no contact period in Ohio for those two days.

The presumptions under the contact period test depend on the number of contact periods in Ohio during the taxable year. If the Tax Commissioner challenges number of contact periods an individual claims to have in Ohio during the taxable year, the individual must verify the number claimed by a preponderance of the evidence. The individual is presumed to have a contact period for any period the individual does not prove was not a contact period. R.C. 5747.24(E).

Individuals presumed to be nonresidents

Up to 120 contact periods. (6) An individual with up to 120 contact periods (or up to 150 under certain circumstances (7)) is presumed not domiciled in Ohio if the individual has at least one abode outside this state during the entire taxable year. If the individual does not have an abode outside of this state for the entire taxable year, this test does not apply.  The law provides that the Tax Commissioner may request that the individual verify, under penalties of perjury, that the individual was not domiciled in Ohio and maintained an abode outside this state for the entire taxable year. Unless the individual either fails to submit the statement within sixty days after receiving the request or makes a false statement, the presumption that the individual is not a resident becomes irrebuttable.

Individuals presumed to be residents

 Less than 183 contact periods. (8) An individual who has less than 183 contact periods in Ohio and does not qualify under the “up to 120 contact periods” test discussed above (9) is presumed to be a full-year Ohio resident. Such an individual may rebut the presumption of residence by proving by a preponderance of the evidence that the individual is not a resident.

At least 183 contact periods. (10) An individual with at least 183 contact periods in Ohio is presumed to be a full-year Ohio resident. Such individual may rebut the presumption of residence by proving by clear and convincing evidence that the individual is not a resident.

Questions

If you have any questions concerning this release, you may e-mail them to us by going to our Web site at tax.ohio.gov and clicking the “Contact Us” link or call us at (800) 282-1780.

OHIO RELAY SERVICES FOR

THE HEARING OR SPEECH IMPAIRED

Phone: (800) 750-0750

FOOTNOTES:

(1) Later this year we will revise this information release for post-2006 taxable years to take into account law changes made by the 126th General Assembly in Sub. H.B. 73.

(2) The tax also applies to estates and trusts, which are not addressed in this information release.

(3) For example, the location of an individual’s financial accounts, the location at which the taxpayer receives professional services such as a doctor’s visit, the location where the individual was married, etc.

(4) In Maple v. Tracy (Sep. 3, 1999), BTA Nos. 98-T-268 and 98-T-312, unreported, the Board of Tax Appeals took the opportunity to review the basic legal concepts of domicile:

“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 period 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 it has been abandoned in favor of a new one. Cleveland v. Surella (1989), 61 Ohio App.3d 302; Saalfeld, supra, 226.”

Domicile has been defined as a place where an individual has his “true, fixed, permanent home and principal establishment, and to which, whenever he is absent, he has the intention of returning.”  Sturgeon v. Korte (1878), 34 Ohio St. 525.  As held by the United States Supreme Court in Williams v. N. Carolina (1944), 325 U.S. 226, “Domicile implies a nexus between person and place of such permanence as to control the creation of legal relations and responsibilities of the utmost significance."  Abandonment of one's domicile is effected only when a person chooses a new domicile, establishes actual residence in the place chosen and shows a clear intent that it be the principal and permanent residence. E. Cleveland  v. Landingham (1994), 97 Ohio App.3d 385.

(5) “An individual is considered to be ‘away overnight from the individual’s abode located outside this state’ if the individual is away from the individual’s abode located outside this state for a continuous period of time, however minimal, beginning at any time on one day and ending at any time on the next day.” R.C. 5747.24(A)(1)(b).

(6) “An individual who during a taxable year has no more than one hundred twenty contact periods in this state, which need not be consecutive, and who during the entire taxable year has at least one abode outside this state, is presumed to be not domiciled in this state during the taxable year. The tax commissioner, in writing and by personal service or certified mail, return receipt requested, may request a statement from an individual verifying that the individual was not domiciled in this state under this division during the taxable year. The commissioner shall not make such a request after the expiration of the period, if any, within which the commissioner may make an assessment under section 5747.13 of the Revised Code against the individual for the taxable year. Within sixty days after receiving the commissioner's request, the individual shall submit a written statement to the commissioner stating both of the following:

(1) During the entire taxable year, the individual was not domiciled in this state;

(2) During the entire taxable year, the individual had at least one abode outside this state.

The presumption that the individual was not domiciled in this state is irrebuttable unless the individual fails to submit the statement as required. If the individual fails to submit the statement as required, the individual is presumed under division (C) of this section to have been domiciled in this state the entire taxable year.

In the case of an individual who dies, the personal representative of the estate of the deceased individual may comply with this division by making to the best of the representative's knowledge and belief the statement under this division with respect to the deceased individual, and submitting the statement to the commissioner within sixty days after receiving the commissioner's request for it.

An individual or personal representative of an estate who knowingly makes a false statement under this division is guilty of perjury under section 2921.11 of the Revised Code.” R.C. 5747.24(B).

(7) R.C. 5747.24(A)(2) provides for up to an additional 30 contact periods if the person provides services or raises funds for an organization that is described in 501(c)(3) of the Internal Revenue Code or for a medical hardship involving the individual or the individuals extended family. 

(8) “An individual who during a taxable year has less than one hundred eighty-three contact periods in this state, which need not be consecutive, and who is not irrebuttably presumed under division (B) of this section to be not domiciled in this state with respect to that taxable year, is presumed to be domiciled in this state for the entire taxable year. An individual can rebut this presumption for any portion of the taxable year only with a preponderance of the evidence to the contrary. An individual who rebuts the presumption under this division for any portion of the taxable year is presumed to be domiciled in this state for the remainder of the taxable year for which the individual does not provide a preponderance of the evidence to the contrary.” R.C. 5747.24(C).

(9) Individuals who do not qualify under the “up to 120 contact periods” test include not only those with over 120 contact periods, but also those with up to 120 contact periods who either fail to submit the required statement within sixty days after receiving a request for it or make a false statement.

(10) “An individual who during a taxable year has at least one hundred eighty-three contact periods in this state, which need not be consecutive, is presumed to be domiciled in this state for the entire taxable year. An individual can rebut this presumption for any portion of the taxable year only with clear and convincing evidence to the contrary. An individual who rebuts the presumption under this division for any portion of the taxable year is presumed to be domiciled in this state for the remainder of the taxable year for which the individual does not provide clear and convincing evidence to the contrary.” R.C. 5747.24(D).