Monday, January 5, 2015

Big Brother & Its Holding Company (or "Hey, Hey, I’m the Tax Man")

Quazzo v. Vermont Dept. of Taxes, 2014 VT 81

By Jeffrey M. Messina

In this case, I take the bold position of saying almost everyonethe Tax Department as well as SCOV (save for a single Justice)is wrong on this one. Bravo, Justice Skoglund, bravo. Now, I suppose, on to the case . . .

This case is about a taxpayer (“Taxpayer”) appealing a decision from the Commissioner of Taxes (the “Commish”) who held the Taxpayer failed to prove a change of domicile to obtain a homestead property tax adjustment on his Vermont residence for 2007 through 2009. Taxpayer contends the Commish erroneously treated this case as one involving a “change of domicile” rather than “maintenance of a domicile;” the difference between the two resting on the burden of proof: specifically, the taxpayer had to prove by clear and convincing evidence that he had, in fact, changed his domicile to Vermont (rather than by a preponderance that he maintained the domicile)despite his declaration which the Department of Taxes had not earlier challenged that Vermont has been his domicile for years. Taxpayer also argues the Commish’s conclusions were not supported by her findings.

Taxpayer's principal residence was in a New York City apartment. In the late 1950s, he bought a house in Chester and used it as a summer vacation home. He lived that way until about the mid-80s to early 90s when he “partially retired" and started to divide his time between the New York City apartment and the Chester home. Over the passing years, the now-90-year-old became less involved in running the family businessthough he did not retire entirely. Today the apartment is leased by Taxpayer’s son, and Taxpayer may stay in that apartment when he goes to New York for business or other reasons.

For many years beginning in 1998 or 2000 (there’s a little uncertainty), Taxpayer filed homestead declarations, receiving property tax adjustments available only to property owners domiciled in Vermont. In 2005 and 2006 he received the adjustment after the Department asked him to provide more information in support of his claim of Vermont domicile. In 2007, however, Department examiners began an inquiry after noticing his almost exclusive use of the New York City home address, telephone and fax numbers when communicating with the Department. Accordingly, the Department refused the application for tax adjustment for 2007, again for 2008 and 2009, ultimately concluding that he had not demonstrated he was domiciled in Vermont. Taxpayer appealed the denial and had an administrative hearing. The hearing officer determined Taxpayer failed to meet his burden to show by clear and convincing evidence that he had changed his domicile to Vermont. The Commish adopted the determination.

According to the Commish, the sole issue was whether Taxpayer had retained his New York domicile or changed his domicile to Vermont, and concluded that Taxpayer had indeed failed to present clear and convincing evidence to overcome the presumption against a change of domicile.

The Commish relied on 11 findings to support her conclusions: (1) taxpayer seemed to be absent from his Chester home a good deal of the year; (2) he had his utility and property tax bills and other important documents mailed to the New York address for his personal secretary to deal with so they would not go unattended, and he signed important documents when he was in New York, rather than in Vermont; (3) he did not explain how his situation changed from the late 1980s/early 1990s to when he claimed to have made a permanent move to Vermont; (4) he continued to be active in business matters both in New York and in Vermont; (5) he had no immediate family living in Vermont; (6) he had continuing access to the apartment in New York leased by his son but available to him, and, in addition to regular travel to Chicago, London, and San Francisco, he spent an average of one to two weeks per month in New York living in the apartment; (7) because he transferred all of his assets to his son and only relied on Social Security benefits and cash of his son when needed, he filed no personal state or federal income tax returns, indicating an income tax return address; (8) he did not provide a passport or any other legal document showing his declaration of the Chester home as his permanent address; (9) in 2007, the attorney for his Vermont Corporation submitted a brief in a legal proceeding stating that taxpayer was a resident of New York; (10) despite requests from the Department, he failed to submit bank or credit card statements that could have supported his assertion of Vermont domicile; and, (11) his doctors are in New York.

Despite the 11 findings, the Commish acknowledged evidence supporting Taxpayer's claim of Vermont domicile. Those things included: (1) that taxpayer has a long time Vermont driver’s license; (2) his vehicles are registered in Vermont;(3) he had been registered to vote in Vermont beginning in 1992 and voted in Vermont at least once; (4) he testified that his family antiques, family albums, and other "near and dear" personal belongings are in Chester rather than in New York; (5) he attends church in Chester and is not a member of any New York churches or clubs; and, (6) has a Vermont bank account where he receives his Social Security checks. The Commish gave very little weight to the Vermont license and registration of his vehicles because Taxpayer got each long before he claimed Vermont as his domicile. The Commish also was skeptical of the claim that taxpayer did not keep any important personal possessions in New York based on the amount of time he spent there. Based on her findings, the Commish concluded that taken as a whole, the evidence did not demonstrate taxpayer's intent to change his domicile from New York to Vermont.

Taxpayer appealed to the Superior Court, arguing that Commish erred by requiring clear and convincing evidence that he had changed domicile from New York to Vermont because a case is only a “change in domicile” case when the Department challenges the very first declaration made, and that the Department was estopped from turning back time because all of those years it accepted him as such. Taxpayer further asserted the Commish should have required of him only to show by a preponderance of the evidence that he had maintained his previously established Vermont domicile for the years at issue. Finally, he argued she drew conclusions that were against the weight of the evidence

The State argued the Department's domicile regulations require that taxpayers not born in Vermont, or not born of parents domiciled in Vermont, prove a change in historical domicile by clear and convincing evidence without regard to how long ago the change in domicile took place.

The lower court found no merit to Taxpayer's argument. Apparently it is a well-settled principle that tax authorities are not estopped by the prior treatment of taxpayer claims. The lower-court concluded that applying the general rule in this case made sense because there was no showing that the Department was aware of the facts surrounding Taxpayer’s living arrangements at the time he filed his earlier claims. Concluding she properly applied the changes to domicile legal standard on these facts, the trial court affirmed the Commish's decision.

Taxpayer appeals to SCOV, renewing his arguments that the "change of domicile" burden only applies the first time a taxpayer files a homestead declaration, and submits that where the Department inquires about a taxpayer’s domicile status and subsequently allows the adjustments, it can no longer treat future matters as “change of domicile.” Taxpayer also reiterates that the Commish failed to make sufficient findings to support her conclusions.

SCOV reviews the Commish's decision “directly, independent of the conclusion on the intermediate, on-the-record appeal of the Superior Court.” The Court also applies a deferential standard of review to agency interpretations of statutes “legislatively entrusted to the agency's administration,” and will uphold the Commish's interpretation absent compelling indication of error. Finally, SCOV defers when reviewing Commish's interpretation of Department regulations and will not set aside the agency's conclusions of law "if they are fairly and reasonably supported by the findings of fact."

The Big Court begins its analysis with a quick review what a domicile really is: “a principal dwelling…owned and occupied by a resident individual as the individuals domicile.” Yes. Helpful! SCOV also defines it as “a place where a person lives or has [a] home, to which, when absent, [s]he intends to return and from which [s]he has no present purpose to depart.” The only definitive definition seems that a petitioner must have been domiciled in the State for the entire year. So, once you figure out what domicile really means, they have to have done it for a full tax year. I would like to add Vermont law provides that “once a domicile is established, it is never lost, changed or destroyed unless there is an actual change in the residence, together with steps manifesting an intention to abandon the former residence and acquire new one.” So, he can't have two but once you have one it's yours; unless you change it. Got it? Yeah, me too . . .

SCOV lays out the 5 most relevant factors under the regulation because they are not easily changeable: (1) what residences are owned or rented by the taxpayer, including the location, their relative size and value, and how they are used; (2) where and how the taxpayer spends time during the tax year including the amount and nature of any travel in the overall pattern of residence of the individual; (3) the location of personal items that are "near and dear" to the taxpayers heart such as family heirlooms or possessions that enhance the quality of the taxpayer's life; (4) the individual's employment, including where the individual earns a living or is actively engaged in business; and, (5) where members of the individual's family reside.

The Court states that singularly, none of the factors are conclusive, but are weighed in light of all the facts and circumstances known to the Department. Further, the burden of proof is on the individual claiming domicile or change of domicile, and that proof must be shown by clear and convincing evidence and “manifested by unequivocal acts.” I don’t know what that means.

The Court then focuses on what it calls the threshold issue in the case: whether the Commish properly treated this matter as a change of domicile case so Taxpayer was required to prove by clear and convincing evidence an actual change of residence and intention to change his domicile to Vermont. SCOV finds no foul. Specifically, the Court affirms that without prior adjudication by Commish or court, a taxpayer not born in Vermont or to parents domiciled in Vermont, could be required to prove a change of domicile for determining the eligibility a homestead declaration property tax adjustment.

While Taxpayer admits tax authorities are never estopped by prior treatment of taxpayer claims, he argues it was unreasonable for the Commish to impose the heavy burden of change of domicile on a taxpayer who had filed homestead declarations for several years. The Court says Too Bad! No matter how you try to slice it, the Tax Department is not estopped because nothing the Department did or did not do in prior years prohibits it from now formally challenging Taxpayer’s establishment of Vermont domicile. As a last-ditch catchall, Taxpayer argues that Commish's approach was unfair since it caught him (and apparently the Department advocate) by surprise. Here, too, SCOV says Nope!, because he “cites no authority for the proposition that application of the correct legal standard by adjudicative body constitutes reversible error when it was unanticipated by the litigants.” So, we're moving on.

SCOV then turns to Taxpayer’s second argument, that the Commish failed to apply the correct statutory and regulatory standards to her findings, and that those findings were insufficient to support her conclusions. Taxpayer’s position is that the Commish should have examined his continuing connections to New York during the period he claimed to change his domicile to Vermont, rather than simply the period between 2007 through 2009 when his medical problems required more frequent travel to New York. (Seems logical to me.)

SCOV concludes the Commish’s findings were sufficient to support her conclusions. Taxpayer bore the burden of proof by clear and convincing evidence to show that he switched domicile from New York to Vermont between 1998 and 2000, and the Commish concluded he "did not demonstrate what had changed between 1985 or 1992, when he was still a New York domiciliary, and 1998 or 2000, when he was still splitting his time between the apartment in New York and the Chester house."

The Commish pointed out that Taxpayer had not filed tax returns and had not produced a passport or bank and credit card statements to support his change of domicile claim during that period, and also that "the one official record and evidence" concerning his declaration of domicile was in a 2007 legal brief submitted by the attorney for his Vermont family business that stated Taxpayer was a resident of New York. (I know, that sounds bad.) She also relied on Taxpayer’s relatively recent need to travel to New York more often for medical reasons, noted his continued use of his historical New York apartment, and his continued business contacts in New York. Further, the continued use of the New York address for dealing with most of this correspondence and bills and the absence of any family in Vermont tipped the scales for her. She determined the Vermont bank accounts, longtime Vermont driver’s license and car registrations, as well as Vermont voter registration was consistent with vacation home ownership and did not demonstrate the requisite intent to change domicile to Vermont. Given the record, SCOV upholds the Commish’s findings.

Dissenting Justice Skoglund to the rescue!

Justice Skogland begins her dissent with the following: “With all due respect to the majority and the [Commish] of Taxes, the decision in this case is nonsensical…. To afford deference to the [Commish] in this case, I would have to ignore the little voice of common sense yelling in my head. The [Commish's] conclusion that taxpayer failed to prove a change in residence from New York City to Chester, Vermont is not supported by the facts as found and should not be affirmed.”

Not much else to say . . .

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