TAX ISSUES
BEATING THE UTAH STATE TAX COMMISSION IN THE GAME OF DOUBLE TAXATION
BY BARBARA M. SMITH, CPA, CIRA, CDBV, CFF
W
ith the large number of individuals moving in and out of Utah in recent years, the issue of domicile has risen to a level of high priority for CPAs and their clients. Domicile has profound legal implications on taxpayers. As outlined in Oklahoma Tax Comm’n v. Chickasaw Nation, the state where an individual is domiciled has much broader authority to tax the income of that individual than other states. There is a “well-established principle of interest … taxation … that a [state] may tax all the income of its residents, even income earned outside the taxing jurisdiction.”1
The Utah State Legislature passed a domicile statute in 2011 that requires mandatory domicile in Utah if2 • Children claimed by taxpayers as dependents are in Utah public schools. • The taxpayer claims a primary residence property tax exemption on a home. • The taxpayer is registered to vote in Utah. These issues create what the Utah State Tax Commission (USTC) call a rebuttable presumption of domicile. Where a taxpayer and their CPA determine that the taxpayer is domiciled outside of Utah, the USTC has a pattern of issuing audit assessments to taxpayers, reversing the
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domicile reported on the return based on property tax or voter registration records. Although Section 59-10136(2)(a) provides guidelines for establishing a rebuttable resumption of domicile, the USTC typically does not allow the taxpayer to properly apply the statute. This causes nightmares for taxpayers who file part-year returns in Utah and another state for the year they move in or out of the great state of Utah. As stated in an amicus brief prepared by the UACPA in an appeal before the Supreme Court in a domicile case, this has resulted in a trap for the unwary in which many taxpayers have fallen. The statute in Subsection 5910-136(2)(a) provides that any and all facts are to be allowed to rebut a presumption of Utah domicile. The statute specifically provides that “domicile” is rebuttable. Subsection 59-10-136(3)(b) indicates that the standard for evaluating domicile is a preponderance of the evidence. And the Utah Supreme Court has ruled, “a preponderance of the evidence is the level of proof required in the typical civil case where only money damages are at stake.”3 When arguing issues of domicile, taxpayers and CPAs must require the USTC to consider all relevant evidence. Rule 401 of the Utah Rules of Evidence provides evidence is relevant if (a) it has any tendency to make a fact more or less probable than it would be without the evidence; and (b)
THE JOURNAL ENTRY |
OCTOBER 2021
