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July 5, 2018

Ohio General Assembly Creates New Bright-Line Domiciliary Test For Ohio Income Tax Purposes

Governor John Kasich signed Substitute House Bill 292 into law on June 14th, again amending R.C. Section 5747.24 regarding Ohio’s bright-line test for determining residency for income tax purposes. The amendments are effective for taxable years beginning on or after January 1, 2018. The purpose of the amendments is to statutorily overturn the result reached by the Ohio Supreme Court in Cunningham v. Testa, 144 Ohio St. 3d 40 (2015), and to re-establish a bright-line test for income tax purposes.

In 1993, the Ohio General Assembly initially established a bright-line test for determining whether an individual was considered to be domiciled in Ohio for personal income tax purposes. Generally speaking, the rule provided that an individual who had no more than a certain number of contact periods with Ohio during a taxable year and who had at least one abode outside of Ohio during the entire taxable year was irrebuttably presumed not to be domiciled in Ohio. A taxpayer was also required to file a “statement” verifying that such individual was not domiciled in Ohio.

In Cunningham, the taxpayer had fewer than the maximum number of contact periods with Ohio during 2008, and the taxpayer filed the required statement with the taxpayer’s tax return. The Tax Commissioner’s statement provided, in part, that the taxpayer “was not domiciled in Ohio at any time during taxable year [insert applicable tax year].” The Ohio Supreme Court ruled that the Ohio Department of Taxation could apply Ohio common law principles of domicile in determining whether the statement was false and rejected the taxpayer’s claim of non-Ohio domicile. Many practitioners believed that the Cunningham case all but eliminated the bright-line test previously established by the Ohio General Assembly.

Substitute House Bill 292 re-establishes the bright-line test. It amends Section 5747.24 to provide that a taxpayer is presumed to be not domiciled in Ohio for the entire taxable year if the taxpayer files a statement with his or her tax return on or before October 15th of the year following the close of the taxable year and meets all of the following requirements:

  1. The taxpayer has no more than 212 contact periods with Ohio during the taxable year;
  2. The taxpayer has an abode outside of Ohio during the entire taxable year for which the individual did not claim a depreciation deduction on his or her federal income tax return;
  3. The taxpayer did not hold a valid Ohio driver’s license or identification card at any time during the taxable year;
  4. The taxpayer did not claim a homestead exemption for an Ohio residence during the taxable year; and
  5. If the taxpayer attended or was enrolled in a state institution for higher education, then the taxpayer did not pay in-state tuition based upon a place of residence in Ohio.

Further, under Substitute House Bill 292, the presumption is “irrebuttable”, unless the statement is false with respect to any of the five requirements set forth above. In other words, the Ohio Department of Taxation can challenge the truthfulness of the statement only as to the five requirements set forth above and can no longer challenge the truthfulness of the statement with respect to any of the other common law principles of domicile. On the other hand, if a taxpayer does not satisfy one or more of the five requirements, all is not lost. Such a taxpayer may still be able to claim a non-Ohio domicile by relying on the common law principles of domicile. That being said, it remains to be seen how receptive the Ohio Department of Taxation will be to considering such common law principles going forward. For some taxpayers, litigation may be necessary. Thus, from a planning standpoint, a taxpayer intending to claim a non-Ohio domicile would be well served to satisfy all five requirements in order to secure the irrebuttable presumption.

Please contact your Vorys attorney today if you are interested in changing your domicile outside of Ohio.


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This alert is for general information purposes and should not be regarded as legal advice. As always, please let us know if you want more information or have questions about how these developments apply to your situation.