A state level decision in the case of In the Matter of the Appeal of Mazur, California OTA Case No. 19064883[1] has a discussion of the concept of domicile, a key concept used by many states as either the single or one of the tests available to determine if an individual must file an income tax return as a resident of the state.

In states with an income tax, residents generally are required to pay tax to the state on all income for the year, whether or not it is sourced to the state, while nonresidents generally only pay tax on income that can trace its source to the state.  But whether someone is or is not a resident isn’t necessarily a simple item to determine.

A concept often used by a state to determine who is a resident is domicile. The concept is one that has developed over centuries[2] but roughly looks at a person’s “permanent home” which remains in place until the individual clearly establishes a new permanent home.  The state of New Jersey, in its instructions to its resident tax form, has the following definition:

A domicile is the place you consider your permanent home – the place where you intend to return after a period of absence (e.g., vacation, business assignment, educational leave). You have only one domicile, although you may have more than one place to live. Your domicile does not change until you move to a new location with the intent to establish your permanent home there and to abandon your New Jersey domicile. Moving to a new location, even for a long time, does not change your domicile if you intend to return to New Jersey. Your home, whether inside or outside New Jersey, is not permanent if you maintain it only for a temporary period to accomplish a particular purpose (e.g., temporary job assignment).[3]

In this case California is the state in question, and having a California domicile is one of the ways a taxpayer may end up being treated as a California resident.  As the opinion notes:

Thus, the statutory definition of “resident” contains two alternative tests, the satisfaction of either one leads to a conclusion that the individual is a resident of this state. In determining residency for an individual not domiciled in California, the inquiry is whether the individual is in California “for other than a temporary or transitory purpose.” (R&TC, § 17014(a)(1).) But for an individual domiciled in California, the inquiry is whether the individual “is outside [California] for a temporary or transitory purpose.” (R&TC, § 17014(a)(2).) “The key question under either [test] is whether the taxpayer’s purpose in entering or leaving California was temporary or transitory in character.” (Appeal of Berner (2001-SBE-006-A) 2002 WL 1884256.)[4]

Thus, if the taxpayer is not domiciled in California, he could not be a resident since he was no longer in California, one of the requirements for a person not domiciled in California to be treated as a California resident for tax purposes.

A taxpayer has only a single domicile at a time, though that doesn’t mean different states won’t interpret the concept differently enough to avoid having two states both find an individual is domiciled in that state. For California the opinion describes a view that is very similar to that found in the New Jersey instructions cited earlier, as well as the view of many states:

Domicile is defined as the one location where an individual has the most settled and permanent connection, and the place to which an individual intends to return when absent.5 (Appeal of Bragg, supra; Cal. Code Regs., tit. 18, § 17014(c).) An individual who is domiciled in California and leaves the state retains his or her California domicile as long as there is a definite intention of returning to California, regardless of the length of time or the reasons for the absence. (Cal. Code Regs., tit. 18, § 17014(c).)[5]

In a footnote, the opinion expands a bit more on this concept.

Defined another way, domicile refers to the place where individuals have their “true, fixed, permanent home and principal establishment, and to which place [they have], whenever [they are] absent, the intention of returning.” (Cal. Code Regs., tit. 18, § 17014(c).) Domicile “is the place in which [individuals have] voluntarily fixed the habitation of [themselves and their] family, not for a mere special or limited purpose, but with the present intention of making a permanent home, until some unexpected event shall occur to induce [individuals] to adopt some other permanent home.” (Ibid.)[6]

Changing a domicile involves more than simply leaving the state. As the opinion continues:

In order to change domicile, a taxpayer must: (1) actually move to a new residence; and (2) intend to remain there permanently or indefinitely. (Appeal of Bragg, supra; see also Noble v. Franchise Tax Bd. (2004) 118 Cal.App.4th 560, 568 [noting these two elements as indispensable to accomplishing a change of domicile].)

It is also not sufficient for a taxpayer to merely claim he/she had the required intent to change domicile—objective evidence will be considered to either bolster or call into question such an assertion.

Intent is not determined merely from unsubstantiated statements; the individual’s acts and declarations will also be considered. (Appeal of Bragg, supra; see also Noble v. Franchise Tax Bd., supra, 118 Cal.App.4th at pp. 567-568.)[7]

The burden is on the taxpayer asserting a change in domicile to clearly show such a change has taken place:

A domicile once acquired is presumed to continue until it is shown to have been changed. (Appeal of Bailey (76-SBE-016) 1976 WL 4032.) The burden of proof as to a change of domicile is on the party asserting such change. (Appeal of Bragg, supra.) If there is doubt on the question of domicile after presentation of the facts and circumstances, then domicile must be found to have not changed. (Ibid.)[8]

In this case the taxpayer certainly left the state, ending up in Malaysia.  As the opinion notes:

In February 2013, appellant-husband moved from California to Malaysia for the purpose of employment as a Product Marketing/Business Development Manager for Symmid Corporation SDN BHD (Symmid).

M. Mazer (appellant-wife) did not accompany appellant-husband to live in Malaysia and continued to live at appellants’ home in California during 2013. She remained a domiciliary and resident of California during the 2013 tax year. Appellants also have an adult daughter who remained in California.

In March 2014, appellant-husband ceased his employment with Symmid and returned to the home that he shared with appellant-wife in California. In total, appellant-husband was in Malaysia for 13 months.[9]

The taxpayers’ position was that while M. Mazer was a California resident, L. Mazer was not a California resident.  Thus, the Mazers subtracted ½ of Mr. Mazer’s wages from Malaysia (his community share of the income—California is a community property state).

The opinion, looking at the facts of the case, determined that L. Mazer was still domiciled in California.  The opinion notes:

It is undisputed that appellant-husband’s domicile prior to leaving for Malaysia in February 2013, was California. Accordingly, his place of domicile for 2013 will be presumed to be California unless he can show that it has changed. (Appeal of Bailey, supra.) Appellants, on their part, contend that appellant-husband abandoned his California domicile and intended to make Malaysia his permanent home. While appellant-husband’s physical presence was in Malaysia, we must examine whether he intended to remain there permanently or indefinitely. (See Appeal of Bragg, supra.) Thus, we will examine appellant-husband’s acts to determine whether they show that he intended to abandon his old California domicile and establish a new one in Malaysia. (See Appeal of Berner, supra.)

While appellant-husband lived and worked in Malaysia, appellant-husband’s actions do not indicate he intended to abandon his old domicile and establish a new one. Appellant-wife remained in California at their marital abode that was maintained in his absence, the address of which was used on their 2013 California tax return. The maintenance of a marital abode is a significant factor in resolving the question of domicile. (Appeal of Bailey, supra.) Appellants contend that appellant-wife was in California merely to facilitate the transition to Malaysia. However, appellants provide no evidence to indicate any steps taken to move appellant-wife to a new permanent home in Malaysia. In addition, after his employment in Malaysia concluded, appellant-husband returned to the home that was retained in California. An expectation of returning to one’s former place of abode defeats the acquisition of a new domicile. (Appeal of Addington (82-SBE-001) 1982 WL 11679.)

To summarize, appellant-husband was domiciled in California prior to leaving the state for an employment-related contract expected to last two years and during that period of employment, appellant-wife continued to maintain a home in California, which appellant-husband returned to at the conclusion of his out-of-state employment. These facts indicate that appellant-husband’s domicile did not change from California to Malaysia. (See Appeal of Addington, supra; Cal. Code Regs., tit. 18, § 17014(c).)[10]

Under California law the taxpayer could still avoid being a California resident, despite being domiciled in California, if he was in Malaysia for other than a temporary or transitory purpose.  The opinion notes the tests for being out of state for a temporary or transitory purpose:

Whether an individual is outside California for a temporary or transitory purpose is a question of fact to be determined by examining all the circumstances of each particular case. (Cal. Code Regs., tit. 18, § 17014(b); see Appeal of Addington, supra.) The determination cannot be based solely on the individual’s subjective intent but instead must be based on objective facts. (Appeal of Berner, supra.)

An absence for a specified duration of two years or less, and not indefinitely, has been held to be only temporary and transitory. (Appeal of Crozier (92-SBE-005) 1992 WL 92339.) However, a stay of less than two years will not automatically indicate a temporary or transitory purpose if the reason for the shortened stay is not inconsistent with an intent that the stay be long, permanent, or indefinite. (Ibid.) An absence for employment or business purposes which would require a long or indefinite period to complete is not temporary or transitory. (Ibid.) An “indefinite period,” however, is not one of weeks or months but one of “substantial duration” involving a period of years. (Ibid.)[11]

The opinion, in making this decision, looks to the level of connection the taxpayer has with the area where he/she is residing vs. connections to California.  As the opinion continues:

For one thing, such contacts constitute an important measure of the benefits and protections the taxpayer has received from the laws and government of California. (Ibid.) Further, such contacts provide objective indicia of whether the taxpayer entered or left this state for temporary or transitory purposes. (Ibid.) Where a California domiciliary leaves the state for employment purposes, it is particularly relevant to determine whether, upon departure, the taxpayer substantially severed his or her California connections and then took steps to establish significant connections with his or her new place of abode, or whether the California connections were maintained in readiness for his or her return. (Appeal of Harrison (85-SBE-059) 1985 WL 15838.)[12]

Citing the case of Appeal of Bragg (2003-SBE-002) 2003 WL 21403264, the opinion provides the following criteria to be used to determine where a taxpayer has the closest connection:

Registrations and filings with a state or other agency, including:

• Homeowner’s property tax exemption

• Automobile registration

• Driver’s license

• Voter registration/participation history

• Address used and state of residence claimed on federal/state tax returns

Personal and professional associations, including the state of the taxpayer’s:

• Employment

• Children’s school

• Bank and savings accounts

• Memberships in social, religious, and professional organizations

• Use of professional services, such as doctors, dentists, accountants, and attorneys

• Maintenance/ownership of business interests

• Professional license(s)

• Ownership of investment real property

• Presence/connections/residency as indicated by third-party affidavits/declarations

Physical presence and property, including:

• Location and approximate sizes and values of residential real property

• Where the taxpayer’s spouse and children reside

• Taxpayer’s telephone records (i.e., the origination point of taxpayer’s telephone calls)

• Origination point of the taxpayer’s checking account/credit card transactions

• Number/general purpose (vacation, business, etc.) of days the taxpayer spends in California versus other states[13]

In this case the administrative law judge (ALJ) concludes that the factors indicate clearly that far too many close connections remained with California.

The ALJ notes that the nature of his employment doesn’t suggest that the assignment was necessarily intended to be permanent, based on the evidence submitted:

In addition, appellant-husband’s optionally renewable contract does not necessarily indicate that his employment was for a permanent or indefinite term. (See Appeal of Purkins (84-SBE-081) 1984 WL 16160; see also Appeal of Milos (84-SBE-042) 1984 WL 16121 [taxpayer held to be California resident based on connections after accepting six-month extensions repeatedly over four years].) Appellants provide no evidence indicating that appellant-husband’s employment in Malaysia was expected to last indefinitely and, as the Bragg factor discussion below illustrates, the evidence indicates that his employment and stay in Malaysia was for a temporary and transitory purpose. (See Appeal of Milos, supra.) Without further evidence in support, we cannot find the contract term providing that it “may be renewable” is sufficient on its own to establish that appellant-husband’s employment was for an indefinite period of substantial duration. Given the above, we find that appellant-husband’s two-year employment contract indicates that his absence from California was for a temporary and transitory purpose. (Appeal of Crozier, supra.)[14]

While the opinion states that the mere fact the taxpayer only remained in Malaysia for 13 months before returning to California is not necessarily clear evidence of a lack of a permanent or indefinite term when the work commenced, it is a practical problem.  Agents are more likely to press the issue of residency when the taxpayer’s stay in the new location is of short duration with a return to the original state afterward, as it is reasonable to expect that it’s far more likely the underlying facts will continue to show close ties to the old home state.

The taxpayer’s connections outside of work also were more closely tied to California.  The opinion notes:

During the time period appellant-husband was in Malaysia for purposes of employment, he did establish connections there, including his apartment lease, vehicle, vehicle registration, and had bills mailed to his Malaysian address. However, these connections were contingent on his employment with Symmid and paid for by his employer. While he had a vehicle provided by Symmid, he did not obtain a Malaysian driver’s license, and although he changed his mailing address to Malaysia, the apartment was in the name of Symmid, and the bills sent to his apartment were paid for by Symmid. It has been held that housing, meals, and vehicles provided by an employer as a “matter of job convenience” are not necessarily significant connections. (Appeal of Stephens (85-SBE-083) 1985 WL 15861; see also Appeal of Keeling (85-SBE-124) 1985 WL 15895.) Similarly, appellant-husband’s connections to Malaysia based on his employment existed only so long as he could fulfill his contractual obligations. We find this tends to show that the connections were, like his contract, of limited duration, and not significant, particularly given that no other evidence was provided indicative of a permanent move.

In addition, appellants do not provide evidence that appellant-husband substantially severed his California connections. Appellant-wife lived in California and they continued to maintain their ownership of a house and vehicle in California. Appellants provide no evidence showing steps taken by appellant-wife to move to Malaysia or to move their permanent home from California. Furthermore, once his employment ended in Malaysia, appellant-husband immediately went back to his home in California, which was maintained in readiness for his return. Because appellant-husband’s connections with Malaysia were only those provided by his employer as a matter of job convenience and not significant, and he made no attempt to sever his substantial connections with California, we find that his presence in Malaysia was for a temporary or transitory purpose. (See Appeal of Milos, supra.) Therefore, we find that appellant-husband was a resident of California in 2013 and subject to tax on his entire taxable income, including his income earned in Malaysia.[15]

[1] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, Pending Precedential, July 23, 2020

[2] You can find a long discussion and citations to various sources on the topic at the Wikipedia page on Domicile (law) at https://en.wikipedia.org/wiki/Domicile_(law)

[3] New Jersey Resident Return (NJ-1040) Booklet, 2019, p. 4, https://www.state.nj.us/treasury/taxation/pdf/current/1040i.pdf (retrieved September 11, 2020)

[4] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, pp. 3-4

[5] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, p. 4

[6] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, p. 4 Footnote 5

[7] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, p. 4

[8] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, p. 5

[9] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, pp. 1-2

[10] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, p. 6

[11] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, p. 6

[12] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, p. 7

[13] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, pp. 7-8

[14] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, p. 8

[15] In the Matter of the Appeal of Mazur, California OTA Case No. 19064883, 2020-OTA-263P, pp. 9-10