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Minnesota Supreme Court says part-year residents owe full-year taxes

ST. PAUL – Minnesotans who live part of the year in another state could find themselves paying income taxes as if they were full-year residents.

Four Minnesota Supreme Court justices this week ruled that a couple who moved to Minnesota on Aug. 1, 2007, owed taxes to the state as full-time residents since they also had spent time at their Minnesota home before moving. In all, they spent more than half of the year in Minnesota.

However, the ruling was split and three justices said the majority missed the point of state law and included days that should not have been counted toward residency for tax purposes.

It was not immediately clear if the decision could affect snowbirds who spend part of the year in the South.

Curtis and Stacy Marks, who own a $4 million home on Lake Minnetonka in the western Twin Cities, filed a 2007 tax return saying they were part-time Minnesota residents. Following an audit, the state revenue commissioner ruled they were full-time residents and owed Minnesota taxes for the entire year.

The state's tax court agreed with the couple, but the Supreme Court ruled that the revenue commissioner was right and that the Markses should pay for the full year. The couple owes Minnesota nearly $651,000 in taxes, penalties and interest.

The couple had moved from Minnesota to Florida in 1999, court records indicate, but kept their Minnesota house and stayed in it part time. In 2007, they re-established residency in Minnesota and Curtis Marks was in the state 70 percent of the year, Justice David Lillehaug wrote in the majority opinion.

State law considers a person a Minnesota resident if he or she spends at least half of the year in the state. For someone considered a state resident, all income is taxed by Minnesota. For a nonresident, only some income earned while living in Minnesota is taxed.

The dispute in the case is how days spent in Minnesota should be counted toward the residency requirement.

The Markses contend that when they lived in Florida, days they spent in Minnesota should not count toward the half-year requirement. The Revenue Department and high court, on the other hand, say that all days the couple stayed in Minnesota should be counted.

Lillehaug and three other justices sided with the department, although wrote that the law is "ambiguous." A Revenue Department rule attempts to clarify the law and requires all days living in Minnesota to be counted toward residency.

A dissenting opinion, written by Justice David Stras, argued that only the days after the Markses moved to Minnesota should be counted toward residency. Although they maintained their Minnesota house since moving to Florida, they did so as Florida residents, not Minnesota residents, the dissention contended.

"The court's backwards analysis leads it to mix and match various classifications of taxpayers—residents, non-residents and part-year residents—in a manner that fails to harmonize the various provisions" of state law, Stras wrote about the majority of justices.

Chief Justice Lori Gildea and Justice Barry Anderson signed onto the Stras dissent.

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.