The Ohio Supreme Court Weakens Ohio’s Bright-Line Test for Non-Residency

August 18, 2015

In Cunningham v. Testa, The Ohio Supreme Court held that the state is permitted to challenge whether a taxpayer is domiciled in Ohio if other evidence available to the state provides a “substantial basis” that the taxpayer’s claim of non-domicile is untrue.  This standard undermines and severely weakens the bright-line test for determining residency in Ohio.

Under Cunningham, if the state has a “substantial basis” to believe that a taxpayer is domiciled in Ohio, they can challenge a taxpayer claim of non-residency, even if the taxpayer satisfies Ohio’s “bright-line” test.  Ohio provides a “bright-line” test for residency, unlike many states that  use a “common-law” test which looks at a number of factors to determine whether, as a whole, the taxpayer is a resident of the state.

Under Ohio’s bright-line test, an individual is considered a non-resident if they:

• Have a home outside of Ohio; and
• Have less than 213 contact periods in Ohio (previously 183 days). See our advisor for additional details on Ohio’s residency contact period.

If a taxpayer meets the bright-line test, the state cannot challenge the status of a taxpayer as a non-resident.  Under Ohio law, a taxpayer can establish an “irrebuttable presumption” as a non-residency if they submit a non-residency affidavit asserting that the taxpayer:

• Was not domiciled in Ohio during the tax year;
• Maintained an abode outside of Ohio;
• Had less than 213 contact periods in Ohio; and
• Was not a part-year resident of Ohio during the taxable year.

Under Ohio law, so long as the affidavit does not contain any false statements, the affidavit creates an irrebuttable presumption that the taxpayer is a non-resident of Ohio.  Traditionally, the focus of whether an affidavit was truthful focused on the bright-line test factors of the taxpayer owning a home outside of Ohio and the contact periods spent in Ohio.

The court’s decision in Cunningham expands the state’s ability to challenge claims of non-residency for purposes of Ohio’s personal income tax.  

Cunningham v. Testa
Kent Cunningham, the taxpayer in Cunningham, owned two homes, one in Tennessee and one in Ohio.  During 2008, Kent met the bright-line test by maintaining his home in Tennessee and having less than 183 contact periods in Ohio.  He timely filed his non-residency affidavit stating he was not domiciled within Ohio and met the requirements of the bright-line test.  During 2008, Kent also filed a homestead exemption application, under penalties of perjury, claiming his Cincinnati home as primary residence.  The state claimed that Kent’s application for a homestead exemption in Cincinnati established a substantial basis to believe that he was an Ohio resident in 2008.

The court agreed with the state and concluded that the state can challenge a taxpayer’s claim of non-domicile when the state has specific information that provides a substantial basis for rejecting the taxpayer’s claim of non-Ohio domicile.  If the state has the requisite basis for a challenge, the traditional common-law factors of residency and domicile will be examined.   In Cunningham, the taxpayer conceded residency under these factors.

Potential Impact and Remaining Questions
In Cunningham, the court stated that the tax commissioner must identify ”specific information or evidence” in order to challenge a taxpayer’s claim of non-Ohio domicile.  For Kent Cunningham his homestead exemption, filed under penalty of perjury, provided the state with the required information to establish a substantial basis that the taxpayer’s claim of non-domicile was untrue.  

The larger question resulting from Cunningham is: “what other factors would create the substantial basis to challenge a taxpayer’s claim?” As the state challenges more claims of both residency and non-residency, the boundaries and types of information required to establish this basis will be determined.

For those taxpayers whose claim of non-Ohio residency is challenged under Cunningham, the state will consider the typical common law factors of residency and domicile.  These factors focus on social and familial ties such as mailing addresses, the location of financial accounts, religious affiliations, board appointments and activity, professional relationships, voter's registration and driver's license issuance.  

Our experienced tax team can help with any questions related to the impact of Cunningham and other issues related to Ohio residency.  If you have any questions or concerns, please click here to contact us.