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).