The pandemic has created the opportunity for people to work remotely and 10,000 baby boomers retired each day in 2022. It is not uncommon for people to become “digital nomads” and travel around the country or internationally in an RV or from one Airbnb to another. Many people may see this as an opportunity to reduce or eliminate their Minnesota income tax liability. (Minnesota was ranked 5th highest for state incom tax by Wallethub in 2021).

Under Minnesota law, once your tax domicile is established in Minnesota, it is presumed to continue unless you can prove a new domicile. In addition to spending less than 183 days in Minnesota, there is a list of 26 other factors that are considered to determine whether you are a resident, including where you are registered to vote, have your driver’s license, and own or rent a home. In totality, these factors must establish not just that you lived outside of Minnesota, but that you established tax domicile someplace other than Minnesota.

The case of Sanchez v. Commissioner illustrates that point. In 2004, Mr. and Mrs. Sanchez sold their Minnesota home and traveled to South Dakota, where they established a mailing address, obtained South Dakota, driver’s licenses, opened checking accounts, obtained credit cards, registered their vehicles, and registered to vote. They did not rent or purchase property there because they planned to travel. For the remainder of 2004 they traveled in their motorhome to 13 states and Canada and did not return to either Minnesota or South Dakota. They claimed part year residency for 2004 and South Dakota residency thereafter. The court found the couple failed to establish they changed their domicile from Minnesota because they did not establish domicile in another state. The absence of their physical presence in South Dakota for a significant period of time after they sold their home in Minnesota was insufficient to establish domicile outside of Minnesota.

Bottom Line: In order to establish a tax domicile outside of the state of Minnesota, be prepared to spend enough time in another state to establish that as your new domicile.

“The main thing is to keep the main thing the main thing.” – Stephen Covey.

Photo of James Duffy James Duffy

Jim is a partner in Taft’s Tax practice and practices principally in the areas of federal tax law; tax credit financing; individual, partnership and corporate tax planning; M&A; tax-exempt organizations and general commercial and corporate law.

Jim has been actively practicing in the

…

Jim is a partner in Taft’s Tax practice and practices principally in the areas of federal tax law; tax credit financing; individual, partnership and corporate tax planning; M&A; tax-exempt organizations and general commercial and corporate law.

Jim has been actively practicing in the area of the New Markets Tax Credits (NMTC) program since its inception in 2001. He has organized community development entities (CDEs) and represented CDEs, borrowers and other parties in structuring and closing numerous NMTC transactions. Jim also advises clients regarding Qualified Opportunity Zone matters.

Jim advises LLCs, partnerships, corporations and individuals in connection with the formation of new companies, mergers and acquisitions, formation of joint ventures, like-kind exchanges, ownership succession planning, and general business operations. These clients are involved in a variety of industries, including banking, venture capital, real estate, construction, consulting and investing.

Jim also advises charitable and non-charitable tax-exempt organizations, including health care entities, schools, religious and civic organizations. In addition to advising management of these organizations with respect to matters pertaining to general operation and maintenance of tax-exempt status, Jim has assisted clients in forming, restructuring and dissolving tax-exempt organizations, as well as forming donor- advised funds.

Prior to joining the firm, Jim worked at the law firm of Lewis Rice and Fingersh in St. Louis, Missouri, where he concentrated his practice in federal and state taxation. He also clerked for the Hon. Robert P. Ruwe of the U.S. Tax Court in Washington, D.C.