Becoming a Nonresident of Ohio for Individual Income Tax Purposes
Ohio imposes its individual income tax on every taxpayer “residing in or earning or receiving income in” Ohio. Thus, an Ohio resident pays Ohio individual income tax on all of his or her compensation, distributive share of income from pass-through entities, interest, dividends, capital gains, rents, royalties, etc. Nonresidents of Ohio only pay Ohio individual income tax on income earned or received in Ohio.
Under the Ohio Revised Code, a taxpayer is considered a resident of Ohio for individual income tax purposes if he or she is domiciled in Ohio. A taxpayer who has no more than a certain number of contact periods (currently 212) with Ohio during a taxable year, which need not be consecutive, and has an abode outside Ohio for the entire taxable year is conclusively presumed to be not domiciled in Ohio during the taxable year if, on or before the 15th day of the fourth month following the close of the taxable year, the taxpayer files an affidavit with the Ohio Tax Commissioner. These requirements became known as the “bright line test.”
The affidavit described above must be on a form prescribed by the Commissioner and verify (1) that the taxpayer was not domiciled in Ohio during the entire taxable year, (2) that the taxpayer had at least one abode outside Ohio during the entire taxable year, and (3) the location of each such abode outside Ohio. The affidavit is extremely important because it creates an irrebuttable presumption that a taxpayer was not domiciled in Ohio for the relevant tax year, so long as it is timely filed and does not contain a false statement.
If a taxpayer does not file the affidavit (or if the affidavit contains a false statement), the taxpayer is presumed to be an Ohio resident and the burden will be on him or her to prove otherwise. To do so, a taxpayer who has fewer than 213 contact periods with Ohio in a taxable year can rebut the presumption of Ohio residency with a preponderance of evidence to the contrary. If, however, the taxpayer has more than 212 contact periods with Ohio in a given taxable year, such taxpayer must provide clear and convincing evidence to rebut the presumption of Ohio residency.
Prior to a recent case decided by the Supreme Court of Ohio, most tax professionals believed that a taxpayer met the bright line test and “was not domiciled in Ohio during the entire taxable year” if the taxpayer had no more than the statutory number of contact periods with Ohio in a given year and had an abode outside of Ohio for the entire taxable year. In the recent case, however, the Supreme Court of Ohio held that the Tax Commissioner can look to common law principles of domicile to determine whether the affidavit filed by the taxpayer contains a false statement (i.e., whether the taxpayer was, in fact, not domiciled in Ohio during the entire taxable year). With this decision, the Supreme Court of Ohio has essentially eliminated the bright line test in favor of the former “facts and circumstances common law test” of domicile.
As a result, unless and until the General Assembly takes further action, a taxpayer who desires to be a nonresident of Ohio for individual income tax purposes should be mindful of the facts and circumstances common law test of domicile and take the steps necessary to change his or her domicile.
Contact your Vorys attorney if you have any questions about Ohio residency for individual income tax purposes or want to make sure you are taking the necessary steps to change your residency from Ohio. Our attorneys have studied these issues for years and have put together a list of “MUST DOS” and “SHOULD DOS” that every taxpayer who wants to change his or her domicile for Ohio individual income tax purposes would be advised to follow.