Ohio’s “Bright Line” residency test provides that an individual will be presumed to be not domiciled in Ohio for income tax purposes for the 2010 tax year for Ohio, and hence, not an Ohio resident for that year, if all the following are satisfied:
- The individual had no more than 182 contact periods in Ohio during the taxable year (a contact period, in general, is created whenever an individual spends any part of two consecutive days in Ohio while away from his or her non-Ohio abode);
- The individual had at least one abode outside Ohio during the entire taxable year;
- On or before May 31, 2011 the individual submits a statement, under penalties of perjury, to the tax commissioner verifying that he or she was not domiciled in Ohio for the entire taxable year, verifying that he or she had at least one abode outside Ohio, and specifying the location of each non-Ohio abode; and
- The required statement is not false.
If the four elements above are met, then the individual will not be required to pay Ohio income tax with respect to any income that is not earned or received in Ohio. For many, this distinction can result in tremendous Ohio tax savings.
Many individuals, however, forget that the test is a “year-by-year” test and that the affidavit (item #3 from above) must be filed each year. The ODT has promulgated Form IT DA, which is commonly referred to as the “Affidavit of Non-Ohio Residency/Domicile.” The affidavit is very important for individuals that are claiming that they are non-residents of Ohio for Ohio personal income tax purposes under the “Bright Line” residency test. If the affidavit is filed and the four elements are met, the individual shall be considered a “non-resident” of Ohio for personal income tax purposes, thereby eliminating Ohio income tax on a portion of the income of the non-resident.
Example:
Edward Quinn has a home in Ohio and a home in Florida. He has owned the Florida home since at least December 31, 2009. During the calendar year of 2010, Mr. Quinn spent five consecutive months at his home in Florida, and spent five consecutive months at his home in Ohio. Mr. Quinn spent two months traveling in Europe. Mr. Quinn considers Florida to be his domicile or state of legal residence. During 2010, Mr. Quinn had income from a partnership that had operations in Ohio and in other states. Mr. Quinn also had interest income, dividend income, and capital gain income, none of which were sitused to Ohio for personal income tax purposes.
Although Mr. Quinn has no more than 182 contact periods in Ohio, he may still be taxed as an Ohio resident unless he also files Form IT DA by May 31, 2011.
If Mr. Quinn files the Form IT DA and meets the other tests, the only income that Ohio can tax for the 2010 tax year is the Ohio-sitused income from the partnership. Mr. Quinn would not have to pay Ohio income tax with respect to the interest income, dividend income, and capital gain income that was not sitused to Ohio.
On the other hand, even though Mr. Quinn had no more than 182 contact periods in Ohio during 2010, if he does not file the Form IT DA, then he would not be protected from ODT attempting to impose Ohio income tax on the interest, dividend, and capital gain income under the “Bright Line” residency test.
The affidavit Form IT DA should be filed separate from the taxpayer’s income tax return and mailed to the address on the Form IT DA’s instructions. Taxpayers wishing to take advantage of the “Bright Line” residency test should keep careful records to substantiate their whereabouts and for purposes of being able to sign the Form IT DA, which is signed under penalties of perjury.
Other states
Residency for personal income tax is an issue in every state that imposes a personal income tax. Many states have similar days in/days out tests for ascertaining whether the individual is considered a resident of that state, but each state maintains its own version of the relevant test for determining residency. It is important to carefully review the residency rules that apply in the state in which you may be required to file and pay income tax.
Our multistate tax attorneys and estate planning attorneys have experience in state tax residency disputes and planning and we would be happy to discuss this or any other state and local tax matter with you. For more information, please contact:
Stephen K. Hall
614.458.0026
shall@mcdonaldhopkins.com
Thomas M. Zaino
614.458.0030
tzaino@mcdonaldhopkins.com
Jeffrey P. Consolo
216.348.5805
jconsolo@mcdonaldhopkins.com
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