Did retirees remain New Jersey domiciliaries after selling their home, buying their only residence in New Mexico, and planning to return years later?

Plain-English summary

Edward and Rebecca McNair became New Mexico domiciliaries when they sold their longtime New Jersey home, bought their only residence in New Mexico, and moved there for an indefinite period. Their stated plan to return to New Jersey years later did not preserve New Jersey domicile for the 2001 tax year.

The McNairs had lived in New Jersey since 1967. When they retired, they sold the home they had occupied for 31 years and bought a home in Las Cruces in 1999. They registered to vote, obtained driver's licenses, and registered their car in New Mexico.

They retained friends, church connections, a New Jersey retirement account, and Mrs. McNair's teacher pension and health benefits. They planned to return if health or transportation needs changed and, in any event, intended to move back at the end of 2020.

But New Mexico was their only residence, and they owned no New Jersey property or business. Over seven years, they made only two New Jersey visits totaling 41 days. Their adult children lived in Arizona, Florida, and Georgia.

The McNairs did not file a 2001 New Mexico return. After receiving federal income information, the Department assessed $2,371 of personal income tax, plus interest.

Domicile required presence and intent

For 2001, Section 7-2-2 defined a resident by domicile. Regulation 3.3.1.9(B) described domicile as a true, fixed home and permanent establishment to which a person intends to return when absent.

A change required physical presence in the new place and an intention to abandon the old domicile and make a home in the new location. An established domicile was presumed to continue until shown to have changed.

Objective conduct outweighed a future plan

The decision gave greater weight to objective facts than to statements of intent. Selling the New Jersey home, acquiring the New Mexico home, conducting daily life there, and obtaining New Mexico civic and vehicle documents established residence in the new state.

The McNairs' social ties to New Jersey had become sporadic, and none of their children remained there. Their possibility or plan of returning later was a future or floating intention, not proof that they continued to live in New Jersey for domicile purposes.

The Department overcame the old-domicile presumption

The McNairs produced evidence of their former New Jersey domicile and their desire to retain it, overcoming the assessment's initial presumption of correctness. The burden of going forward then shifted.

The Department met that burden with proof that the couple had sold the old home, established their only residence in New Mexico, and intended to remain for an indefinite time. The hearing officer found that they changed domicile in 1999.

Result: protest DENIED. The McNairs were New Mexico residents and owed personal income tax for 2001.

What this means for you

Retirees moving between states

Domicile turns on the whole pattern of residence and intent. Owning and living in one home indefinitely can outweigh longstanding connections to the former state.

Taxpayers planning a future return

A possibility or even a stated plan to move back years later may not preserve the former domicile when present conduct establishes a home elsewhere.

Taxpayers documenting domicile

Courts and hearing officers may give significant weight to objective actions such as selling or buying a home, voter registration, driver's licensing, vehicle registration, daily activities, and time spent in each state.

Historical-year residency disputes

The decision applied the law in effect for 2001. It noted that New Mexico expanded its residency definition for 2003 and later years to include people physically present in the state for at least 185 days.

Common questions

Q: Why did the McNairs argue they remained New Jersey domiciliaries?
A: They relied on their long history, friends, church connections, pension and health-plan ties, and intent to return in the future.

Q: What facts showed New Mexico domicile?
A: They sold their New Jersey home, bought their only home in New Mexico, lived there for years, and obtained New Mexico voter, driver's-license, and vehicle registrations.

Q: Did their future plan to return to New Jersey control?
A: No. The hearing officer treated it as a possibility or floating future intention that did not outweigh their present residence and conduct.

Q: Did the McNairs have children in New Jersey?
A: No. Their adult children lived in Arizona, Florida, and Georgia.

Q: What tax did the Department assess?
A: It assessed $2,371 of 2001 New Mexico personal income tax, plus interest.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-17 — presumption that an assessment is correct
• NMSA 1978, § 7-2-2 — 2001 definition of resident
• NMSA 1978, § 7-2-3 — income tax on resident individuals
• Regulation 3.1.6.12(A) NMAC — evidence rebutting an assessment's factual correctness
• Regulation 3.3.1.9(B) NMAC — definition of domicile

Cases cited:

• Estate of Peck v. Chambers, 80 N.M. 290, 454 P.2d 772 (1969)
• Hagan v. Hardwick, 95 N.M. 517, 624 P.2d 26 (1981)
• Lyon v. Glaser, 288 A.2d 12 (N.J. 1972)
• Matter of Unanue, 605 A.2d 279 (N.J. Super. Ct. 1991)
• Goffredo v. Director, Division of Taxation, 9 N.J. Tax 135 (N.J. Tax Ct. 1987)
• Citizens Bank & Trust Co. v. Glaser, 357 A.2d 753 (N.J. 1976)
• Texas v. Florida, 306 U.S. 398 (1939)
• MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-021, 133 N.M. 217, 62 P.3d 308

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Ed & Rebecca McNair
• Decision PDF: D&O 06-17

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
EDWARD P. & REBECCA A. McNAIR TO No. 06-17
ASSESSMENT OF PERSONAL INCOME TAX
ISSUED UNDER LETTER ID L2104874496

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on October 12, 2006, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department (“Department”)

was represented by Lewis J. Terr, Special Assistant Attorney General. Edward and Rebecca

McNair (“Taxpayers”) represented themselves. Based on the evidence and arguments presented,

IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. In 1967, the Taxpayers established their residence and domicile in the state of

New Jersey.

2. Mrs. McNair taught school in New Jersey for 25 years and currently receives a

pension and health benefits through the New Jersey Teachers’ Pension and Annuity Fund.

3. Both of the Taxpayers were very active in their church during the time they lived

in New Jersey.

4. The Taxpayers made many friends during the time they lived in New Jersey, most

of whom still live in New Jersey.

5. Mrs. McNair’s brother and Mr. McNair’s cousins live in New York, which is an

easy drive from New Jersey.

6. When the Taxpayers were ready to retire, they decided to move to Las Cruces,

New Mexico, in order to enjoy the climate and the stimulation of a new environment.

7. In 1999, the Taxpayers sold their home in New Jersey, where they had lived for 31

years, and purchased a home in New Mexico, where they have lived for the past seven years.

8. The Taxpayers’ children, who are all adults, live in Arizona, Florida and Georgia;

none of the Taxpayers’ children live in New Jersey.

9. The Taxpayers do not currently own any property in New Jersey.

10. The Taxpayers do not have any business interests in New Jersey.

11. The Taxpayers have one retirement account with a New Jersey bank; the

Taxpayers also have bank accounts in Texas and New Mexico and an annuity from a company in

Colorado.

12. After moving to New Mexico, the Taxpayers registered to vote, obtained New

Mexico driver’s licenses, and registered their automobile in New Mexico.

13. After moving to New Mexico, the Taxpayers returned to New Jersey for two

visits: once in 1999 for approximately 18 days and once in 2004 for approximately 23 days.

14. Five or six couples the Taxpayers knew in New Jersey have come to visit them in

New Mexico. The Taxpayers also keep in touch with their friends in New Jersey through

telephone calls and e-mail.

15. Under the terms of Mrs. McNair’s health plan, the Taxpayers pay higher health

care costs in New Mexico than they would if they lived in New Jersey.

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16. The Taxpayers have planned for future contingencies and have decided that if they

develop health problems or become unable to drive, they will return to New Jersey where health

care and public transportation are more readily available than in New Mexico.

17. In any event, the Taxpayers plan to return to New Jersey at the end of 2020 (when

Mr. McNair will be 90 and Mrs. McNair will be 85) and purchase a small maintenance-free

condominium.

18. For the 2001 tax year, the Taxpayers filed a federal income tax return listing their

address in Las Cruces, New Mexico.

19. The Taxpayers did not file a 2001 New Mexico income tax return.

20. The Taxpayers filed a 2001 New Jersey income tax return as nonresident

domiciliaries. Because New Jersey provides generous exclusions for social security and

retirement income, the Taxpayers did not have any tax liability to New Jersey.

21. In 2005, pursuant to an information exchange agreement, the Department received

information from the Internal Revenue Service concerning the income reported on the

Taxpayers’ 2001 federal income tax return.

22. On August 15, 2005, after determining that the Taxpayers had not filed a 2001

New Mexico income tax return, the Department assessed them for $2,371 of personal income

tax, plus interest, on the income reported on their federal return.

23. On September 2, 2005, the Taxpayers filed a written protest to the assessment.

DISCUSSION

The Taxpayers challenge the Department’s assessment of New Mexico personal income

tax for the 2001 tax year based on their contention that since 1967 they have been, and continue

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to be, domiciliaries of New Jersey. The Department asserts that the Taxpayers changed their

domicile from New Jersey to New Mexico in 1999 and were New Mexico residents for purposes

of reporting and paying 2001 state income taxes.

Determination of Residency Based on Domicile. NMSA 1978, § 7-2-3 imposes an

income tax on the net income of “every resident individual.” For the 2001 tax year, NMSA

1978, § 7-2-2 defined the term “resident” as follows:1

“resident” means an individual who is domiciled in this state during any part of
the taxable year; but any individual who, on or before the last day of the taxable
year, changed his place of abode to a place without this state with the bona fide
intention of continuing actually to abide permanently without this state is not a
resident for the purposes of the Income Tax Act.

Department Regulation 3.3.1.9(B) NMAC defines domicile as “a place of a true, fixed home and

a permanent establishment to which one intends to return when absent and where a person has

voluntarily fixed habitation of self and family with the intention of making a permanent home.”

A change of domicile requires both physical presence in the new locality and an intention to

abandon the old domicile and to make a home in the new dwelling place. Estate of Peck v.

Chambers, 80 N.M. 290, 292, 454 P.2d 772, 774 (1969). In Hagan v. Hardwick, 95 N.M. 517,

519, 624 P.2d 26, 28 (1981), the New Mexico Supreme Court set out the following standard for

determining a change in domicile: “to effect a change from an old and established domicile to a

new one, there must be...a fixed purpose to remain in the new location permanently or

indefinitely. For domicile once acquired is presumed to continue until it is shown to have

changed….”

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Effective for 2003 and subsequent tax years, § 7-2-2 was amended to expand the definition of residency to include
persons who are physically present in New Mexico for 185 days or more during the taxable year. Laws 2003, ch.
275, § 1. The statutes and regulations cited in this decision are to the versions that were in effect during the 2001 tax
year.

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New Jersey uses much the same criteria to determine a person’s domicile. In Lyon v.

Glaser, 288 A.2d 12 (N.J. 1972), the Supreme Court of New Jersey addressed the issue of

whether a decedent was a domiciliary of New Jersey or Maryland at the time of her death. The

court first noted that Mrs. Lyon’s long-time residence in New Jersey during her marriage created

a presumption that her domicile was in New Jersey. As a result, “her estate which claims that

Maryland became her new domicil long before her death, became burdened with the duty of

going forward with evidence to rebut the presumption.” Id., 288 A.2d at 21. The court noted,

however, that the existence of certain facts will serve to weaken or even destroy the presumption

of continued domicile:

For example, a home or residence in another state is commonly regarded as Prima
facie evidence of domicil, and the longer the period of the new residence the
stronger the Prima facie case becomes. It has been said also that proof of
residence elsewhere is sufficient to rebut the presumption, and to return the onus
of going forward with the proof that the former domicil has not been abandoned to
the proponent of continuance. And the same concept has been put in another
form; When a residence is taken up elsewhere, a presumption arises that the
original residence has been abandoned. Mitchell v. Delaware State Tax Comm'r.,
49 Del. 598, 42 A.2d 19 (Super.Ct.1945); Felker v. Henderson, 78 N.H. 509, 102
A. 623; 25 Am.Jur.2d, Domicil, Supra, s 86, p. 62.

Id. See also, Matter of Unanue, 605 A.2d 279, 287 (N.J. Super. Ct. 1991) (a change of domicile

is effected if a person actually moves to a new location intending to remain there for an indefinite

time, “notwithstanding that he entertains merely a possibility, or floating intention, of returning

to his former domicile at some later time”).

When the issue of domicile is raised as a defense in tax cases, courts give greater weight

to the objective facts relating to domicile than to the taxpayer’s statements of intent. As the New

Jersey Tax Court explained in Goffredo v. Director, Division of Taxation, 9 N.J.Tax 135, 146

(N.J. Tax Ct. 1987):

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[T]he court places greater weight upon the objective facts placed in evidence over
the alleged intentions as orally stated by plaintiffs in these proceedings. Swain v.
Neeld, 28 N.J. 60, 64, 145 A.2d 320 (1958). "[Declarations] of domicile
motivated by tax considerations may be carefully scrutinized and readily rejected
when negated by the objective circumstances." Lyons v. Glaser, supra, 60 N.J. at
281, 288 A.2d 12 (Jacobs, J. dissenting). As to the relative weight to be given to
various types of evidence produced to establish domicile such as "formal
declarations," "informal declarations" and "acts," See Restatement, Conflict of
Laws 2d, supra, at 82, 83. "Actions speak louder than words, and the courts rely
most heavily upon them." Id. at 82.

See also, Citizens Bank & Trust Co. v. Glaser, 357 A.2d 753, 759 (N.J. 1976) (registration to

vote and payment of income taxes from a New Jersey address “were deliberate tactics to lay a

basis for avoidance of the Virginia state income tax” and could not overcome other evidence of

domicile in Virginia). In Texas v. Florida, 306 U.S. 398, 425-426 (1939) the United States

Supreme Court applied similar reasoning to settle a dispute concerning a decedent’s domicile:

While one's statements may supply evidence of the intention requisite to establish
domicile at a given place of residence, they cannot supply the fact of residence
there; [citations omitted] and they are of slight weight when they conflict with the
fact. [citations omitted] This is the more so where, as here, decedent's
declarations are shown to have been inspired by the desire to establish a nominal
residence for tax purposes, different from his actual residence in fact....
...
Whatever floating intention Green may have had after 1911 to return to Texas
and to make his home there, it is plain that it receded into the background after
his mother’s death and had completely vanished when he began to build up his
extensive estate at Round Hills in Massachusetts.... He could not elect to make
his home in one place in point of interest and attachment and for the general
purposes of life, and in another, where he in fact had no residence, for the
purpose of taxation.

Application of the Law of Domicile to the Facts of this Case. Pursuant to NMSA

1978, § 7-1-17, the Department’s assessment has a statutory presumption of correctness. That

presumption is overcome, however, when the taxpayer comes forward “with some countervailing

evidence tending to dispute the factual correctness of the assessment....” Regulation 3.1.6.12(A)

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NMAC; MPC Ltd. v. New Mexico Taxation & Revenue Department, 2003-NMCA-21, ¶ 13, 133

N.M. 217, 62 P.3d 308. In this case, the presumption of correctness was overcome when the

Taxpayers provided evidence that they were domiciled in New Jersey prior to their move to New

Mexico and intended to retain their original domicile. At that point, it was the Department’s

burden to overcome the presumption in both New Jersey and New Mexico law that the

Taxpayer’s domicile continued to be in New Jersey. The Department met this burden by

establishing that the Taxpayers sold their New Jersey home and acquired a new home in New

Mexico in 1999, two years prior to the tax year at issue. As stated in Lyon v. Glaser, supra, 288

A.2d at 21: “proof of residence elsewhere is sufficient to rebut the presumption, and to return the

onus of going forward with the proof that the former domicil has not been abandoned to the

proponent of continuance.”

From 1999 forward, the Taxpayers’ only residence was in New Mexico and that is where

their activities of daily life were conducted, including registering to vote, registering their

automobile and obtaining driver’s licenses. In support of their contention that they have never

abandoned their New Jersey domicile, the Taxpayers point to the fact that they owned their home

there for 31 years, were active in the local church, and still have many friends located in New

Jersey. There is no dispute, however, that the Taxpayers sold their New Jersey home and do not

currently own any property in that state. Since moving to New Mexico, the Taxpayers are no

longer in a position to participate in the religious and social activities of their New Jersey church.

And, while it is true that the Taxpayers have stayed in touch with some of their New Jersey

friends, these contacts have, of necessity, been sporadic. During the last seven years, the

Taxpayers have made only two visits and spent a total of 41 days in New Jersey. Much of their

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socializing with old friends has been conducted in New Mexico, where they have hosted five or

six couples who have traveled to the Southwest to visit the Taxpayers in their new home.

Finally, it should be noted that none of the Taxpayers’ children remain in New Jersey, but are

scattered across the country in Georgia, Florida and Arizona.

The evidence establishes that the Taxpayers moved to New Mexico in 1999 with the

intention of remaining in the state indefinitely, if not permanently. Nonetheless, the Taxpayers

continue to claim a New Jersey domicile for purposes of reporting and paying state income tax.

In resolving such conflicts, “actions speak louder than words.” Goffredo, supra, 9 N.J.Tax at

146. The Taxpayers’ stated plan to return to New Jersey at some point in the future is not

sufficient to maintain their domicile in that state during their residence in New Mexico—a

residence that has already lasted for seven years and may, according to their own testimony,

continue for another fourteen years. As the New Jersey Superior Court found in Matter of

Unanue, supra, 605 A.2d at 287, a change of domicile is effected if a person actually moves to a

new location intending to remain there for an indefinite time, “notwithstanding that he entertains

merely a possibility, or floating intention, of returning to his former domicile at some later time.”

In this case, the Taxpayers effected a change of domicile to New Mexico in 1999 and are liable

for New Mexico personal income tax for the 2001 tax year.

CONCLUSIONS OF LAW

A. The Taxpayers filed a timely, written protest to the assessment of tax issued under

Letter ID L2104874496, and jurisdiction lies over the parties and the subject matter of this protest.

B. The Taxpayers abandoned their New Jersey domicile in 1999 and established a new

domicile in New Mexico.

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C. During 2001, the Taxpayers were residents of New Mexico as defined in the Income

Tax Act and are liable for New Mexico personal income tax for that year.

For the foregoing reasons, the Taxpayers’ protest IS DENIED.

DATED October 19, 2006.

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