Marks v. Comm'r of Revenue, A15–1145.

875 N.W.2d 321

Curtis G. and Stacy S. MARKS, Respondents,

v.COMMISSIONER OF REVENUE, Relator.

No. A15–1145.

Supreme Court of Minnesota.

Feb. 17, 2016.

Barry A. Gersick, Michael C. McCarthy, Charles G. Frohman, Maslon LLP, Minneapolis, Minnesota, for respondents.

Lori Swanson, Attorney General, John R. Mulé, Tamar N. Gronvall, Assistant Attorneys

General, Saint Paul, Minnesota, for relator.

OPINION

LILLEHAUG, Justice.

In 2007, respondents Curtis and Stacy Marks filed Minnesota tax returns, claiming they were part-year residents of the state. Following an audit, the Commissioner of Revenue (the Commissioner) determined that the Markses were full-year residents and assessed additional income tax, penalties, and interest. The Markses appealed, arguing that the Commissioner improperly applied the definition of "resident" in Minn.Stat. § 290.01, subd. 7(b) (2014). The tax court granted summary judgment to the Markses. Because we conclude that the tax court's interpretation of the statute was erroneous, we reverse and remand.

I.

Curtis and Stacy Marks moved from Minnesota to Florida in 1999. Though they became Florida domiciliaries that year, they continued to maintain a home in Minnesota and spent significant time here. On August 1, 2007, the Markses re-established domicile in Minnesota. During 2007, Curtis Marks was physically present or domiciled in Minnesota for a total of 257 days (70% of the year).¹ When the Markses filed their Minnesota tax return for 2007, they claimed part-year resident status.

In 2009, the Commissioner began an audit of the Markses' prior year tax returns, including their return for 2007. In November 2010, the Commissioner determined that the definition of "resident" in Minn.Stat. § 290.01, subd. 7(b), applied to the Markses for the 2007 tax year and that they were therefore full-year residents of Minnesota that year. The Commissioner allocated the Markses' worldwide income for the full year to Minnesota and assessed additional income tax, penalties, and interest in the amount of $626,719.81. The Markses filed an administrative appeal, and the Commissioner upheld the ruling, resulting in a balance due of $650,789.38.

The Markses appealed the Commissioner's determination to the tax court, where the parties filed cross-motions for summary judgment based on their respective statutory interpretations. The tax court granted the Markses' motion and denied the Commissioner's motion, concluding that the Markses were not residents under the statute because they spent fewer than 183 days in Minnesota prior to becoming domiciled here, and "the only days that may be aggregated for purposes of satisfying the [physical presence] requirements of subdivision 7(b) are those spent in Minnesota while ‘domiciled outside the state.’ "

Based on the tax court's order and a stipulation that the Markses established Minnesota domicile on August 1, 2007, the parties stipulated to the proper allocation of the Markses' income. The stipulated allocation resulted in the Markses owing additional tax, penalties, and interest of $271,623.89. The tax court entered an Order for Judgment requiring the Markses to pay that amount. This appeal followed. The amount in dispute is at least $379,000.

II.

The Commissioner contends that the tax court's interpretation of Minn.Stat. § 290.01, subd. 7(b), is erroneous and that the plain language of the statute allows the Commissioner to count all days an individual spent in Minnesota in a given tax year to determine whether the individual was a "resident" of the state. The Markses, on the other hand, argue that the tax court correctly held that the statute's plain language allows the counting of only days spent in Minnesota as nondomiciliaries.

We review de novo whether the tax court committed an error of law, such as an erroneous interpretation of a statute. ILHC of Eagan, LLC v. Cty. of Dakota, 693 N.W.2d 412, 418–19 (Minn.2005). When we interpret statutes, our objective is to ascertain and effectuate the intent of the Legislature. Brayton v. Pawlenty, 781 N.W.2d 357, 363 (Minn.2010) ; see also Minn.Stat. § 645.16 (2014). "When the words of a statute in their application to an existing situation are clear and free from all ambiguity," we must give effect to the plain meaning of the law. Minn.Stat. § 645.16 ; accord Am. Tower, L.P. v. City of Grant, 636 N.W.2d 309, 312 (Minn.2001). A statute is ambiguous if, as applied to the facts of the case, it is susceptible to more than one reasonable interpretation. Staab v. Diocese of St. Cloud, 813 N.W.2d 68, 72–73 (Minn.2012). If a statute is ambiguous, we may look beyond the statute's text to ascertain the intent of the Legislature. See Minn.Stat. § 645.16.

Minnesota Statutes § 290.17 (2014) describes what income must be allocated to the State of Minnesota for individual income tax purposes. The statute provides different rules for income allocation depending on the taxpayer's residency. For a "resident," all income is subject to Minnesota income tax. See Minn.Stat. § 290.17, subd. 1(a). For a nonresident and an "individual who is a resident for only part of a taxable year," the amount of income allocated to Minnesota depends on the type of income. See, e.g., Minn.Stat. § 290.17, subd. 2(a)(1) (allocating income from wages to Minnesota to the extent that the work of the employee was performed in Minnesota); Minn.Stat. § 290.17, subd. 1(c) (providing a formula for determining the amount of partnership, S corporation, trust, or estate income allocated to Minnesota for part-year residents). Though nonresident and part-year resident status is crucial to the allocation rules under Minn.Stat. § 290.17, that statute does not define "nonresident" or an "individual who is a resident for only part of a taxable year."

However, Minn.Stat. § 290.01, subd. 7, does provide two definitions of the term "resident." The statute provides, in relevant part:

(a) The term "resident" means any individual domiciled in Minnesota....

(b) "Resident" also means any individual domiciled outside the state who maintains a place of abode in the state and spends in the aggregate more than one-half of the tax year in Minnesota....

For purposes of this subdivision, presence within the state for any part of a calendar day constitutes a day spent in the state.

Minn.Stat. § 290.01, subd. 7. These definitions apply "for the purposes of [chapter 290,]" "[u]nless the language or context clearly indicates that a different meaning is intended." Id., subd. 1.²

Subdivision 7, passed in 1987, does not squarely address how to determine the residency of individuals domiciled in Minnesota for only part of a year. In 1988 the Commissioner promulgated Minn. R. 8001.0300, subp. 8 (2015) (the Rule), which states that

persons domiciled outside Minnesota who move their domiciles to Minnesota during the tax year are part year residents of Minnesota. The physical presence test does not apply to such persons unless a Minnesota abode is maintained during the period domiciled outside of Minnesota.

The Rule also provides examples of its application to different factual scenarios. One such example addresses an individual who spends part of the year domiciled in the state and part of the year domiciled outside the state. The example clarifies that if an individual maintains an abode in Minnesota while domiciled outside the state, all days the individual spends in Minnesota that year—whether as a domiciliary or not—can be aggregated to determine whether the individual is a full-year resident. Minn. R. 8001.0300, subp. 10B.

III.

We begin our analysis by determining whether the plain language of the statute clearly and unambiguously requires a particular result in this case. Both the Markses and the Commissioner contend that the statute's plain language requires us to adopt their respective interpretations. However, we conclude that the statute's text is susceptible to two reasonable interpretations regarding whether an individual is a "resident" when that individual is domiciled both "in Minnesota" and "outside the state" during a given tax year. As a result, the statute is ambiguous.

One reasonable interpretation, advanced by the Markses and adopted by the tax court, is that the phrase "domiciled outside the state" limits the rest of subdivision 7(b) and requires that the individual fulfill the conditions of abode and physical presence entirely during the portion of the year that the individual is domiciled outside Minnesota. Though the statute's plain language requires the Commissioner to examine whether the individual in question "spends in the aggregate more than one-half of the tax year in Minnesota," under the Markses' reading that language serves only to indicate that the days spent in Minnesota as nondomiciliaries need not be consecutive to count as days spent in the state. Thus, under this reasonable reading, an individual whose domicile changes during a tax year is only a "resident" for the full year if that individual both maintains an abode in the state and spends at least 183 days in Minnesota while domiciled in another state.

But the Commissioner's interpretation is also reasonable. The Commissioner argues that when an individual is domiciled both inside and outside Minnesota in a single tax year, subdivision 7(b) contemplates that the Commissioner will count all the days the individual is present in the state during that year to determine whether that person is a "resident." Under this interpretation, the phrase "domiciled outside the state" does not limit the time periods that may be examined to determine whether the abode and physical presence conditions are fulfilled during the tax year, but rather provides that individuals may be taxed as residents for portions of the year that they were not domiciled in Minnesota if during the tax year they maintained the substantial contacts with the state that subdivision 7(b) requires: abode and physical presence for more than half the year. As a result, under the...