June 09, 2017

Home Is (Not) Where Your Legal and Financial Advisers Are: Minnesota Changes Domicile Determinations

Minnesota will no longer consider the location of a person’s attorney, CPA, financial adviser or bank account when determining where an individual is domiciled for income tax purposes.

Under Minnesota law, an individual is a resident of Minnesota for income tax purposes if he or she is either: (1) domiciled outside Minnesota, but maintains a place of abode in the state and spends in the aggregate more than one-half of the tax year in Minnesota (the “183-day test”), or (2) domiciled in Minnesota. The Department of Revenue evaluates the second test, domicile, using numerous factors, including the 26 considerations identified in Minnesota Rule 8001.0300. Among those considerations are:

  • Location of any bank accounts, especially the location of the most active checking account
  • Location of other transactions with financial institutions
  • Location of business relationships and the place where business is transacted

The omnibus tax bill signed by the Governor on May 30, 2017, included a legislative amendment specifically removing from consideration in a domicile dispute the location of an individual’s attorneys, CPAs, financial advisers and banking relationships. The new law (effective for tax years beginning after December 31, 2016) states:

In determining where an individual is domiciled, neither the commissioner nor any court shall consider:

  • The location of the individual’s attorney, certified public accountant or financial adviser; or
  • The place of business of a financial institution at which the individual applies for any new type of credit or at which the individual opens or maintains any type of account.

A “financial adviser” is defined as one of the following: 

  • An individual or business entity engaged in business as a certified financial planner, registered investment adviser, licensed insurance producer or agent or registered securities broker-dealer representative
  • A financial institution providing services related to trust or estate administration, investment management or financial planning

A “financial institution” is defined to include banks, trust companies, credit unions and broker-dealers registered under the Securities and Exchange Act of 1934 (and certain other financial entities).

Minnesota residents who change their domicile to another state typically take certain steps to sever their ties to Minnesota. Under the new law, it is unnecessary to sever relationships with trusted advisors and financial institutions. The Department of Revenue rarely asserted that the use of a Minnesota lawyer or accountant (for example) was a significant factor in determining domicile, but now the Department will be precluded from doing so.

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