Ohio Income Tax Residency “Bright-Line” Law Changed
Be aware of new statutory foot-faults that change presumption for 2018 Ohio tax returns
Background on Case that eliminated Bright-Line test:
In 2015, the Supreme Court of Ohio issued an opinion in Cunningham v. Testa, 144 Ohio St.3d 40, 2015-Ohio-2744, that essentially eliminated the benefits of Ohio’s bright-line residency test (domicile and residency will be used interchangeably in this document). We previously discussed the background of the case and Ohio’s bright-line residency test in our previous SALT Buzz dated May 1, 2016. In short, the Court held that the common law of domicile was still relevant for Ohio tax purposes, and merely meeting the elements of the previous bright-line test was not sufficient to establish that the individual was not domiciled in Ohio.
House Bill 292 “Bright-line” Domicile changes
On June 14, 2018 Governor Kasich signed House Bill “H.B.” 292 which established a revised bright-line residency test, and which adds four new elements which were not a part of the previous law.
The law, which will be first effective for Ohio tax returns filed for taxable years beginning on or after January 1, 2018, sets forth specific factors to determine if an individual is presumed not to be domiciled in Ohio for income tax purposes. Under the revised law, an individual will be presumed to not be domiciled in Ohio if the individual:
Spends less than 213 contact periods in Ohio during the taxable year;
Files a statement (Form IT-DA) with the Ohio Tax Commissioner by the 15th day of the tenth month (generally, October 15 for most taxpayers) following the close of the taxable year stating that the individual had less than 213 contact periods in Ohio during the taxable year;
Has, for the entire year, at least one abode outside of Ohio for which the individual did not claim a depreciation deduction under IRC § 167 for the taxable year (e.g. investment property or home office deduction);
Did not hold a valid Ohio driver’s license or Ohio identification card at any time during the taxable year;
Did not receive an Ohio homestead benefit for real estate tax purposes for the same year; and,
If the individual attended or was enrolled in a state institution of higher education at any time during the taxable year, the amount of tuition was not based on an abode being located in Ohio.
Under the previous law, the following facts were not necessarily fatal to the presumption of non-Ohio domicile, but under the new law, these facts will be fatal to a presumption of non-Ohio domicile:
Having an Ohio driver’s license or Ohio identification card during the taxable year at issue;
Claiming a depreciation deduction (for example for a home office) for the non-Ohio abode; or,
Claiming an Ohio homestead benefit (owner-occupied 10% rollback and / or age 65 or greater / permanently disabled 2½% reduction).
Note that the existence of one or more of these facts listed above can, in some circumstances, be overcome for a taxpayer claiming a non-Ohio domicile; the challenge is that the presumption of non-Ohio domicile is lost if one or more of those facts exist.
The deadline for filing the “bright-line” affidavit is no longer May 30 of the year following the taxable year. Now, the deadline is the 15th day of the 10th month following the close of the taxable year (generally October 15 for most taxpayers). This change allows those on extension to file the affidavit around the same time that the individual is filing the Ohio tax return.
Many former Ohio residents that were using the contact period test and the old version of the law, or that planned to change domicile out of Ohio for taxable year 2018, may be caught off-guard by the new law that becomes effective this taxable year. For instance, many may still have an Ohio driver’s license, or be claiming an Ohio homestead benefit. However, merely because the presumption of non-Ohio domicile will not apply, those individuals may still be able to properly claim non-Ohio domicile. You may wish to contact one of our attorneys for more information on your residency status under Ohio law.
If you have any questions on Ohio income tax residency treatment or other issues affecting your Ohio personal income tax liability, please contact Adam Garn, Steve Hall, or any of our other tax professionals.