A recent Illinois tax decision should further incentivize property owners in Illinois to hold onto their Illinois properties and avoid Illinois taxation.
The relevant facts are as follows. In August 2006, the Department sent the plaintiffs a notice of tax deficiency, which asserted that the plaintiffs owed $1,842,582 in unpaid income taxes and penalties for the years from 1996 through 2004. Despite facing a nearly $2M tax liability, the Plaintiff's cooly submitted payment under protest and thereafter filed a complaint seeking a declaration that they were not Illinois residents during the disputed period. The parties stipulated to facts for the purposes of cross-motions for summary judgment. The stipulation noted that the couple renounced their Illinois residency in 1995, obtained Florida identification cards in 1996 and participated in various civil processes, including jury duty, in Florida. The Appellate Court also morbidly found significance in the fact they both purchased burial plots in Florida.
Countering the Florida connection, Mrs. Cain, an interior designer, continually renewed her Illinois interior design license and repeatedly failed to note her address had changed to Florida from Illinois. They both retained memberships in various clubs in both states.
The spent their time about evenly between Florida and Illinois but their intent, as evidenced by the facts above, was to be a domicile and resident of Florida.
Weighing the factors, the Circuit Court ruled that the Cains were "mere seasonal visitors" and therefore they were not subject to the taxes at issue.
The Appellate Court, careful to frame the issues, wisely focused on the statute at issue: "Section 201(a) of the Illinois Income Tax Act (Act) (35 ILCS 5/201(a) (West 2010)) imposes an income tax 'on the privilege of earning or receiving income in or as a resident of this State.'" Resident, as the Court notes, is not the same term of art as used in voting or other statutes. Rather, Section 1501(a)(20)(A) of the Act, defines the word “resident” as “an individual (i) who is in this State for other than a temporary or transitory purpose during the taxable year; or (ii) who is domiciled in this State but is absent from the State for a temporary or transitory purpose during the taxable year.” 35 ILCS 5/1501(a)(20)(A) (West 2010).
In case you jumped out of your seat at this rather banal statutory definition, plant yourself firmly back down because temporary or part-time resident is defined as an individual who became a resident during the taxable year or ceased to be a resident during the taxable year. 35 ILCS 5/1501(a)(17)(A) (West 2010).
Under Section 1501(a)(20)(A)(ii) residence commences with the establishment of domicile in this State and ceases with the establishment of domicile in another State. 35 ILCS 5/1501(a)(17) (West 2010).
While there is no statutory definition of domicile, the Department itself defines domicile similarly to caselaw. See Viking Dodge Inc. v. Hoffman, 147 Ill. App. 3d 203, 205, 497 N.E.2d 1346 (1986) (“The four elements required for a change of domicile are physical abandonment of the first domicile; an intent not to return to the first domicile; physical presence in the new domicile; and an intent to make that one’s domicile.”).
After marching through each of the four factors outlined, the Cains were held to have effected a proper change of domicile and therefore changed their residency for tax purposes to Florida, thereby avoiding these Illinois taxes.
The consequence for Illinois residents who hold property outside of the state and are facing double taxation is clear. Consult with an attorney like Nair Law LLC to determine how you can apply this new caselaw to save your family from double taxation.