STATE OF ARKANSAS DEPARTMENT OF FINANCE AND ADMINISTRATION OFFICE OF HEARINGS & APPEALS ADMINISTRATIVE DECISION IN THE MATTER OF ACCT. NO.: INDIVIDUAL INCOME TAX ASSESSMENT DOCKET NO.: 17-295 (2014) ( ) 1 TODD EVANS, ADMINISTRATIVE LAW JUDGE APPEARANCES This case is before the Office of Hearings and Appeals upon a written protest dated January 20, 2017, submitted by, Attorney at Law ( Taxpayer s Representative ) on behalf of, the Taxpayer. The Taxpayer protested an assessment of Individual Income Tax made by the Department of Finance and Administration ( Department ). A hearing was held on June 1, 2017, at 11:00 a.m., in Bentonville, Arkansas. The Department was represented by Michelle Baker, Attorney at Law, Office of Revenue Legal Counsel ( Department s Representative ). Present by telephone for the Department was Ben Johns, Tax Auditor Individual Income Tax Section. The Taxpayer was represented by the Taxpayer s Representative. The Taxpayer appeared at the hearing along with, the Taxpayer s Mother. The record remained open for the submission of post hearing briefs. The Department filed its initial brief on June 15, 2017. The Taxpayer s Representative 1 This amount represents (tax), (failure to file and pay penalties) and (interest). 1
filed his Response Brief on July 17, 2017. The Department filed its final Reply Brief on July 26, 2017. This matter was submitted for a decision on July 31, 2017. ISSUE Whether the Taxpayer was a resident of the State of Arkansas for income tax purposes during the 2014 tax year. Yes. FINDINGS OF FACT/CONTENTIONS OF THE PARTIES The Department s Representative summarized the following relevant facts in her initial post-hearing filing, which were adopted by the Taxpayer s unless noted or otherwise supplemented in footnotes 2 : Between and, the taxpayer was a resident of, Arkansas, and later, Arkansas. Sometime in, the taxpayer obtained employment with in Texas. Between and, the taxpayer left the employment of and obtained employment with. During the time between and, the taxpayer lived in an apartment in, Texas. At the June 1, 2017, administrative hearing, the taxpayer provided proof that he obtained a Texas driver's license in, and registered a motorcycle in Texas in. In, the taxpayer obtained employment with. This employment required, and still requires, extensive travel. The taxpayer reports to, or is employed through, a division office located in, Texas. Per testimony provided at the hearing, the taxpayer's MOU (memorandum of understanding) for his employment with was, until recently, and a MOU means that the employee must expect to be present at a job location for only short periods of time (usually between 6 to 12 months). The taxpayer s first assignment with was in, and he worked in between October and October. Per the testimony at the hearing, the taxpayer did not have friends in Texas that he felt comfortable asking to watch his apartment and possessions. He also did not feel comfortable asking his family to make drives to Texas to watch his apartment and possessions. For these reasons, the taxpayer moved out 2 A review of the hearing testimony showed that this statement of facts (as supplemented by the Taxpayer s Representative and other footnotes) accurately incorporated the hearing testimony. 2
of his apartment in Texas and moved many of his belongings to a storage unit that he rented, and continues to rent, in Arkansas. It appears the storage unit is located near the residence of the taxpayer's mother, as the taxpayer's mother testified that she has at times had to retrieve certain possessions from the storage unit to send to the taxpayer. When the taxpayer moved to his assignment in, he also began using his mother's address in Arkansas to ensure that he would not miss seeing any important mail. Per the testimony presented at the hearing, the taxpayer's mother would open mail that appeared to be important and relay information to the taxpayer by phone or would forward the mail to the taxpayer. Later, as technology improved, the taxpayer's mother would scan the taxpayer's mail and email the mail to him. While in, the taxpayer lived in company provided housing. Between October and March, the taxpayer was assigned to a location in. While in, the taxpayer rented an apartment and later moved in with a girlfriend. During this time, he acquired a vehicle and registered the vehicle in (proof of ownership and registration was not provided at the hearing nor found in the protest packet or with the taxpayer's Answers to Information Request) 3 and he obtained a driver' s license. The taxpayer received mail at his residences in Hawaii. Between March 2010 and September 2010, the taxpayer was assigned to a location in, Texas. 4 While in, the taxpayer rented an apartment in. During this time, he acquired a vehicle and registered the vehicle in Texas (proof of ownership and registration was not provided at the hearing nor found in the protest packet or with the taxpayer s Answers to Information Request). The taxpayer did not obtain a Texas driver' s license. The taxpayer received mail at his residence in Texas. In September 2010, the taxpayer was given a short-term assignment in, California. 5 At that time, he broke his lease for the Texas apartment and sold the vehicle he had purchased and registered in Texas. Between October 2010 and the present date, the taxpayer has been 3 The Taxpayer s Post-Hearing Response Brief provided a copy of the Taxpayer s Insurance Auto Policy Declaration for a 2008 Toyota with a registration. 4 The Taxpayer s Post-Hearing Response Brief stated that this job was permanent employment in that area. The Taxpayer asserted that, after 2010 until 2014, he intended to return to when temporary appointments were not available. The Taxpayer also included a Retail Installment Contract (utilizing his Texas address) for a vehicle that the Taxpayer leased in, Texas during this time. 5 During the administrative hearing, the Taxpayer testified that he met his current girlfriend during this assignment and she is also employed with. 3
assigned to locations in and other international locations. While on assignment he has resided in only hotel and company provided housing. In May 2014, the taxpayer obtained an Arkansas driver's license while visiting his mother. 6 Since September 2010, the taxpayer has used his mother's Arkansas address on tax returns and other correspondence. Most receipts for hotel and car rentals in 2014 reflect the taxpayer's residence as his mother's address in, Arkansas. 1 [This footnote stated that a few receipts contained an address in.]. 7 The taxpayer has continued to rent a storage unit in Arkansas in which he stores his belongings. Since leaving, Texas in 2010, the taxpayer's only tie to Texas has been the division office of to which he is assigned. The taxpayer's immediate family (parents and a sister) lives in Arkansas, and the testimony at the hearing established that the taxpayer has made or at least attempted to make annual visits to his family in Arkansas since beginning his employment with in. 2 [This footnote noted that such visits rarely lasted more than a week.]. 8 In 2016, this agency received information from the Internal Revenue Service ("IRS" hereafter) indicating that the taxpayer used the address of, AR 3 [This footnote stated that this was the address of the Taxpayer s Mother.] on his federal income tax return for tax year 2014. In September 2016, this agency sent a "Notice of Non-Filed Return" to the taxpayer which asked the taxpayer to file an Arkansas income tax return for tax year 2014, or provide proof the taxpayer was not required to file a 2014 Arkansas income tax return. 9 A copy of this Notice is attached as Exhibit A to this brief. After receipt of this letter, the taxpayer communicated back and forth with the Individual 6 The Taxpayer s Post-Hearing Response Brief asserted that an Arkansas driver s license does not require proof of residence for issuance (only proof of legal presence in Arkansas) and, thus, the provided address should not indicate residence, citing Ark. Code Ann. 27-16-1105(a)(1)(D) and (a)(2) (Supp. 2015). 7 The Taxpayer s Post-Hearing Response Brief noted that the Arkansas address was utilized as a mailing address and this use is not an indication of residence. 8 The Taxpayer s Post-Hearing Response Brief noted that the Taxpayer s father resides in and the Taxpayer made two trips (totaling nine (9) days) to visit him during 2014. Additionally, that document noted that his girlfriend resides in and the Taxpayer made three trips (totaling twenty-two (22) days) to visit her during 2014. The Taxpayer s Representative further noted that, during 2014, the Taxpayer spent as much time in as Arkansas and twice as much time in. Additionally, during the administrative hearing, the Taxpayer s mother testified that the Taxpayer does not have a room in her home, does not live there, does not attend a local church, and does not have membership in local organizations. 9 The Taxpayer s Post-Hearing Response Brief noted that the Taxpayer received similar notices for the tax years 2011 through 2013; however, those assessments were not pursued by the Department though the Taxpayer provided the same information with each protest. 4
Income Tax Section in an attempt to prove that he was a domiciliary of Texas. However, the documents provided to the tax section, or later obtained by the tax section, reflected: the taxpayer had an Arkansas driver's license in 2014 (see driver' s license information attached as Exhibit B); the taxpayer's address on W-2 forms and pay stubs for tax year 2014 was an Arkansas address (see W-2 form and pay stub attached as Exhibits C and D); and the taxpayer's address on other correspondence issued in 2014 (such as hotel and car rental receipts) primarily reflected an address in Arkansas. For these reasons, the tax section determined that the taxpayer was required to file an Arkansas income tax return for tax year 2014. The taxpayer did not file an Arkansas income tax return, and the tax section issued a Notice of Proposed Assessment" of income tax that was based solely upon income figures provided to this agency by the IRS. Also in 2016, the taxpayer rented a residence in and obtained a driver's license. This year, the taxpayer purchased a house in where it appears he plans to live with his girlfriend. In addition, the taxpayer is taking steps to change his MOU with to provide him with more time with his girlfriend. After a general discussion of the governing law, an analysis with legal conclusions shall follow. follows: CONCLUSIONS OF LAW Standard of Proof Ark. Code Ann. 26-18-313(c) (Supp. 2015) provides, in pertinent part, as The burden of proof applied to matters of fact and evidence, whether placed on the taxpayer or the state in controversies regarding the application of a state tax law shall be by preponderance of the evidence. A preponderance of the evidence means the greater weight of the evidence. Chandler v. Baker, 16 Ark. App. 253, 700 S.W.2d 378 (1985). In Edmisten v. Bull Shoals Landing, 2014 Ark. 89, at 12-13, 432 S.W.3d 25, 33, the Arkansas Supreme Court explained: 5
A preponderance of the evidence is not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other. The Department bears the burden of proving that the tax law applies to an item or service sought to be taxed, and a taxpayer bears the burden of proving entitlement to a tax exemption, deduction, or credit. Ark. Code Ann. 26-18- 313(d) (Supp. 2015). Statutes imposing a tax or providing a tax exemption, deduction, or credit must be reasonably and strictly construed in limitation of their application, giving the words their plain and ordinary meaning. Ark. Code Ann. 26-18-313(a), (b), and (e) (Supp. 2015). If a well-founded doubt exists with respect to the application of a statute imposing a tax or providing a tax exemption, deduction, or credit, the doubt must be resolved against the application of the tax, exemption, deduction, or credit. Ark. Code Ann. 26-18- 313(f)(2) (Supp. 2015). A. Tax Assessment Assessment Ark. Code Ann. 26-51-201 (Supp. 2015) imposes the Arkansas individual income tax upon, and with respect to, the entire income of every resident, individual, trust, or estate regardless of whether that income is earned inside or outside the state. The tax is levied, collected, and paid annually upon the entire net income of the individual. Ark. Code Ann. 26-51-102(2) (Repl. 2012) defines the term taxpayer to include any individual, fiduciary, or corporation subject to the Arkansas income tax. Ark. Code Ann. 26-51-102(3) (Repl. 2012) defines the 6
term individual as a natural person. For a tax imposition, the term Resident is defined at Ark. Code Ann. 26-51-102 (Repl. 2012) as follows: (14) Resident means natural persons and includes, for the purpose of determining liability for the tax imposed by this act upon or with reference to the income of any taxable year, any person domiciled in the State of Arkansas and any other person who maintains a permanent place of abode within this state and spends in the aggregate more than six (6) months of the taxable year within this state[.] Arkansas Comprehensive Individual Income Tax Regulation 2.26-51- 102(9) defines a resident and provides, in pertinent part, as follows: a) any person domiciled in the state of Arkansas. Domicile is comprised of an act coupled with an intent. A domicile is acquired by (1) physical presence at a place coinciding with (2) the state of mind (that is, intent) of regarding the place as a permanent home. A domicile arises instantaneously when these two facts occur. Every person must have one domicile but can have no more than one domicile, regardless of how many residences a person may have at any given time. A domicile, once established, continues until a new domicile of choice is legally established. An established domicile does not end by lack of physical presence alone nor by mental intent alone. The old domicile must be abandoned with the intention not to return to it. If one moves to a new location but intends to stay there only for a limited period of time (no matter how long), the domicile does not become the new location but rather remains unchanged.... c) In situations where it is not clear if the requirements of either domicile (a) or place of abode (b) have been met, a residency determination can only be made after thoroughly reviewing the facts on a case by case basis. When reviewing the facts, the Supreme Court of Arkansas has held that we are not bound to accept a taxpayer's claims of intent when the circumstances point to a contrary conclusion. Furthermore, when acts are inconsistent with a taxpayer's declarations, the acts will control, and our conclusions regarding residency should be based on the facts and circumstances proved. The following factors should be reviewed in making a residency determination: Address used on federal income tax returns; 7
Address used on telephone, utility and commercial documents; Address used on voter registration; Address used on drivers license, hunting and fishing license; Address used on motor vehicle, boat and trailer registration; Address used on real and personal property tax documents; Address used on county and other tax assessments; Address on governmental documents, such as military records. With respect to military records, the Leave and Earning Statement is a very important document; If the Taxpayer has a spouse, the spouse's address on such things as drivers license, voter registration, vehicle registration, etc. should be checked out; Employer and withholding information, nature of Taxpayer's employment (traveling salesperson, etc.); Location of Taxpayer. How often and for how long does Taxpayer reside at the location; Location of immediate family, such as spouse and children; Length of time in Arkansas of Taxpayer and immediate family; Community affiliations, such as club memberships, church, bank accounts, etc.; Absence of factors in other states. Taxpayers may have more than one (1) residence but they can only have one (1) domicile. Leathers v. Warmack, 341 Ark. 609, 19 S.W.3d 27 (2000) and Ark. Code Ann. 7-5-201(b)(2) (Supp. 2013). The burden of proving a change of domicile is on the party asserting the change in domicile. National Wire Fabric Corporation v. Nelson, 563 F. Supp. 303 (D.C. Ark., 1983) and Steward v. Steward, 16 Ark. App. 164, 698 S.W.2d 516 (1985) (citing Hart v. Hart, 223 Ark. 376, 265 S.W.2d 950 (1954)). In Warmack, supra, the Arkansas Supreme Court addressed the weight to be given to acts that conflicted with statements regarding intent to abandon a domicile and stated, in part: 8
The intent to abandon one's domicile and take up another must be ascertained from all the facts and circumstances of the particular case. Morris v. Garmon, 285 Ark. 259, 686 S.W.2d 396 (1985). The factfinder is not bound to accept claims of intent when the circumstances point to a contrary conclusion; they cannot prevail unless borne out by acts. Charisse v. Eldred, 252 Ark. 101, 477 S.W.2d 480 (1972). When acts are inconsistent with a person's declarations, the acts will control, and declarations must yield to the conclusions to be drawn from the facts and circumstances proved. Id., 341 Ark. at 618-619, 19 S.W.3d at 34. In his protest, the Taxpayer s Representative argued that the Taxpayer was domiciled in, Texas in 2010 and did not abandon that domicile. He asserted that the use of the Taxpayer s Mother s address as his mailing address on his tax returns, payroll stubs, and driver s license are not indicative of an intent to create a new domicile. He stated that the use of that address was due to the uncertainty of his work locations while the Taxpayer was assigned to several temporary jobs after 2010. In her first post-hearing brief, the Department s Representative acknowledged that this case turned on whether the Taxpayer was domiciled in Arkansas during 2014. She argued that the Taxpayer abandoned his domicile in Texas in and was a domiciliary of Arkansas during 2014. Specifically, the Department s Representative asserted that; when the Taxpayer exited his Texas apartment lease, moved all of his belongings to Arkansas, and began using his mother s mailing address at that time; he abandoned his domicile in Texas. Rather than holding that the Taxpayer became stateless, she noted that stateless persons without a domicile are generally disfavored by courts and, thus, tenuous connections with a state (which are more substantive than other states) can be 9
accepted as evidence of domicile. 10 Additionally, she also noted that a new domicile must be created at the time of abandonment of a prior domicile to establish a change of domicile, citing Martin v. Simmons First Trust Co., 371 Ark. 484 (2007). She also argued that a home base can be recognized as a person s domicile, citing Leathers v. Warmack, 341 Ark. 609, 617 (2000). The Department s Representative then analogized persuasive authority from another jurisdiction, Dept. of Revenue v. Glass, 333 Or. 1 (2001). In Glass, that taxpayer drove a semi truck and lived within that truck. That taxpayer visited his parents in Oregon for about two weeks every year 11, possessed an Oregon driver s license, registered two personal automobiles in Oregon, and utilized his parent s Oregon home as his mailing address. That Court concluded that, under Oregon s income tax law, that taxpayer continued to be domiciled within Oregon (even though he spent most of his year within his semi truck) and, thus, was a resident of the State of Oregon for income tax purposes. 12 She further argued that that, if domicile was uncertain, a weighing of the factors contained in Arkansas Comprehensive Individual Income Tax Regulation 2.26-51-102(9)(c) leads to a conclusion that the Taxpayer is domiciled in Arkansas. In his post-hearing response brief, the Taxpayer s Response Brief, the Taxpayer s Representative argued that the Taxpayer did not abandon his Texas domicile in 1998, since he did not leave the State of Texas with an intent not to 10 The Taxpayer s Representative distinguished the case citations provided by the Department on this statement of law, noting that governing Arkansas case law requires actual abandonment coupled with an intention not to return to it and the establishment of a new domicile, citing Martin v. Simmons First Trust Co., 371 Ark. 484, 486 (2007) 11 The Taxpayer s Representative accidently misread that Court s fact statement as saying the taxpayer visited Oregon every two weeks. 12 The Taxpayer s Representative distinguished this case by noting that the Taxpayer had a prior domicile in Texas (a different state) and the Taxpayer did not have vehicles registered in Arkansas. 10
return and returned to Texas in 2010, rented a new apartment, and leased a vehicle in Texas. 13 He further stated that the Taxpayer did not abandon his Texas domicile in 2010 when he again left that state because he intended to later return to Texas and listed Texas as his state of residence on all state tax returns and pay stubs. When the Taxpayer left Texas in 2010, the Taxpayer again ended his lease on his Texas apartment and ended his vehicle lease. Additionally, he argued that utilizing an Arkansas mailing address is insufficient evidence of an intent to establish a new domicile in Arkansas. He further stated that domicile requires that the Taxpayer establish an actual residence within Arkansas coupled with the intent to remain within the State. The Taxpayer s Representative proceeded to note that Regulation 2.26-51-102(9)(b) requires the establishment of a permanent home within the state of Arkansas. This argument, however, appears misplaced since that section of the regulation does not address the determination of domicile but an alternative method of becoming a resident of Arkansas through establishment of a permanent place of abode and spending an aggregate of six months within Arkansas during a tax year. The Taxpayer also cited the Court s discussion of what constitutes a place of abode in Leathers v. Warmack. That inquiry is also not relevant here where the Department alleges that the Taxpayer is domiciled within the State, creating his residency. 13 The Department initially argued that the Taxpayer abandoned his Texas domicile in 1998; however, the Taxpayer s Representative asserted that the stated contacts were reestablished with Texas during seven months in 2010 and thus his domicile was reestablished. The Taxpayer provided copy of his vehicle rental installment contract within his Post-Hearing Response Brief and a copy of his apartment lease within his Protest. This decision shall assume without deciding that Texas domicile was reestablished in 2010 since this determination does not affect the ultimate analysis of the issue of domicile during the 2014 tax year. 11
After the Court in Leathers discussed the determination of a place of abode, the Court proceeded to discuss the relevant inquiry for domicile stating as follows: On the other hand, this court has long recognized that domicile has a broader meaning than residence, and includes residence. Thus, domicile requires an actual residence plus the intent to remain in a particular place. No word, it is said, is more nearly synonymous with domicile than home, and it is generally agreed that a man can have but one home or domicile, but that he may have more than one place of residence. Thus, like residence, no particular length of time is required to establish one's domicile, but there must be residence attended by such circumstances surrounding its acquirement as to manifest a bona fide intention of making it a fixed and permanent place of abode. The intent to abandon one's domicile and take up another must be ascertained from all the facts and circumstances of the particular case. The factfinder is not bound to accept claims of intent when the circumstances point to a contrary conclusion; they cannot prevail unless borne out by acts. When acts are inconsistent with a person's declarations, the acts will control, and declarations must yield to the conclusions to be drawn from the facts and circumstances proved. [Internal Citations Omitted.] Leathers, 341 Ark. at 618. The governing case law discusses a home as merely a place that is viewed as home by the Taxpayer (requiring an inquiry of intent) and does not require a piece of real estate that is owned or rented by the Taxpayer within the State of Arkansas to create domicile. In the Department s final post-hearing brief, the Department s Representative argued that it was not relevant that the Department chose not to assess the Taxpayer for the Tax Years 2011, 2012, and 2013; however, she proceeded to explain that the review for those periods was solely reviewed by taxpayer service representatives and was not elevated to an auditor (as was the case in 2014) for further review and research. Based on that additional research, the Auditor determined that the Taxpayer was an Arkansas Resident during the 12
2014 tax year. The Department s Representative further argued that any statements of intent must be weighed against the Taxpayer s actions, which she asserted indicate an intent to abandon his Texas domicile. Here, the Taxpayer testified to an intent to return to Texas but actions show a severance of his ties and no showing of any remaining connections with Texas beyond an facility operated by his employer. The Taxpayer left his residence in Texas, cancelled his car lease, and began utilizing an Arkansas address as his personal mailing address. These facts are indicative of an abandonment of his domicile in Texas; however, a creation of a new domicile in Arkansas is also required. Some of the presented actions (which must control over expressions of intent) provide an indication of intent to domicile in Arkansas. During the relevant tax year, the Taxpayer acquired an Arkansas driver s license, had most of his belongings stored within the State of Arkansas, used an Arkansas address as his primary mailing address, and was physically present within the State, albeit for a short period of time. Both representatives noted during the administrative hearing that the Taxpayer s unstable living conditions (due to his continuing engagement in temporary work projects as a single individual over several years) makes him a unique case when determining the issue of domicile. I must concur with this view. During the tax year, however, the Taxpayer had physical presence within Arkansas and performed several acts that are indicative of an intent to treat Arkansas as his home. Additionally, the Taxpayer severed most of his ties with Texas, his alleged prior domicile. 13
When a taxpayer s domicile is not certain, Regulation 2.26-51-102(9)(c) provides several factors to be reviewed to resolve the issue of domicile. Those factors shall be considered individually with an analysis regarding each factor. Address used on federal income tax returns; Here, the Taxpayer utilized an Arkansas address on his federal income tax return. This factor favors the Department s position. Address used on telephone, utility and commercial documents; Here, the Taxpayer utilized the Arkansas address on his other business accounts. This factor favors the Department s position. Address used on voter registration; Here, the Taxpayer is not registered to vote in Arkansas and no evidence has been presented to show that the Taxpayer was registered in any other state during the tax year. This factor is a wash that favors neither side s position. Address used on driver s license, hunting and fishing license; Here, the Taxpayer possessed an Arkansas driver s license during the tax year. The Taxpayer did not possess a hunting or fishing license. This factor favors the Department s position. Address used on motor vehicle, boat and trailer registration; Here, the Taxpayer did not have a motor vehicle, boat, or trailer registered in Arkansas. The Taxpayer, however, does not have a motor vehicle, boat, or trailer registered in any other state during the tax year. This factor is a wash that favors neither side s position. Address used on real and personal property tax documents; Here, the Taxpayer did not have property subject to property taxes in Arkansas during the tax year. The Taxpayer, however, does not have property located in other jurisdictions either. This factor is a wash that favors neither side s position. Address used on county and other tax assessments; 14
Here, the Taxpayer did not have property subject to a tax assessment during the tax year. Consequently, such billings are not present. This factor is a wash that favors neither side s position. Address on governmental documents, such as military records. With respect to military records, the Leave and Earning Statement is a very important document; Here, the Taxpayer claimed to be a Texas resident on his California state income tax return during the tax year. However, the Taxpayer utilized the Arkansas address as his address on his California state income tax return. This factor is a wash that favors neither side s position. If the Taxpayer has a spouse, the spouse's address on such things as drivers license, voter registration, vehicle registration, etc. should be checked out; The Taxpayer did not have a spouse during the relevant tax year. Consequently, this factor is not relevant to this discussion and favors neither side s position. Employer and withholding information, nature of Taxpayer's employment (traveling salesperson, etc.); Here, the Taxpayer claimed to be a Texas resident in his W-2 s during the tax year. However, the Taxpayer utilized the Arkansas address as his address on his w-2 s. This factor is a wash that favors neither side s position. Location of Taxpayer. How often and for how long does Taxpayer reside at the location; Here, the Taxpayer was present in Arkansas for only eleven (11) days in 2014. While the Taxpayer s mother and sister are Arkansas residents, the Taxpayer s father resides in and the Taxpayer spent a similar amount of time with him during the tax year. This factor is a wash that favors neither side s position. Location of immediate family, such as spouse 14 and children; Here, the Taxpayer s mother and sister reside in Arkansas; however, the Taxpayer s father resides in. This factor is a wash that favors neither side s position. 14 The Taxpayer s girlfriend and her child would not ordinarily be considered a part of the Taxpayer s family and shall not be analyzed as such within this decision. 15
Length of time in Arkansas of Taxpayer and immediate family; Here, the Taxpayer was present in Arkansas for only eleven (11) days in 2014. While the Taxpayer s mother and sister are Arkansas residents, the Taxpayer s father resides in and the Taxpayer spent a similar amount of time with him during the tax year. This factor is a wash that favors neither side s position. Community affiliations, such as club memberships, church, bank accounts, etc.; Here, the Taxpayer did not have any community affiliations or memberships within the Arkansas during the tax year. The Taxpayer, however, does not have these connections with other states either. This factor is a wash that favors neither side s position. Absence of factors in other states. Here, the Taxpayer does not have property or other more substantive connections with any other state. This factor favors the Department s position. Under the above analysis, the applicable factors provided by the regulation preponderate in favor of a finding that the Taxpayer was domiciled in Arkansas during the 2014 Tax Year. Consequently, the Taxpayer was a resident during the 2014 tax year and the assessment of income tax against the Taxpayer is sustained. B. Failure to Failure to File and Failure to Pay Penalties With respect to the failure to file penalty, Ark. Code Ann. 26-18-208(1) (Repl. 2012) provides as follows: In the case of a taxpayer's failure to file any return required by any state tax law on or before the date prescribed determined with regard to any extension of time for filing the return, unless it is shown that the failure is due to reasonable cause and not to willful neglect, there shall be added to the amount required to be shown as tax on the return five percent (5%) of the amount of the tax if the failure is not more than one (1) month, with an additional five percent (5%) for each additional month or fraction of a 16
month during which the failure continues, not to exceed thirty-five percent (35%) in the aggregate.... With respect to the failure to pay penalty, Ark. Code Ann. 26-18-208(2)(B) (Repl. 2012) provides as follows: In case of failure to pay the amount shown as tax on any individual income tax return required to be filed, on or before the date prescribed for payment of the tax, unless it is shown that the failure to pay is due to reasonable cause and not to willful neglect, there shall be added to the amount shown as tax on the return one percent (1%) of the amount of the tax if the failure is for not more than one (1) month, with an additional one percent (1%) for each additional month or fraction of a month during which the failure continues, not to exceed thirty-five percent (35%) in the aggregate.... Further, Ark. Code Ann. 26-18-208(3)(B) (Repl. 2012) With respect to any individual income tax return, the amount of the addition under subdivision (1) of this section shall be increased by the amount of the addition under subdivision (2)(B) of this section for any month or fraction of a month to which an addition to tax applies under both subdivision (1) and (2)(B) of this section, not to exceed thirty-five percent (35%) in the aggregate;.... While it is concluded above that the Taxpayer was domiciled in Arkansas, the Taxpayer did present significant evidence and testimony in support of his position that he did not consider himself to be an Arkansas Resident. A preponderance of the evidence supports a finding that the Taxpayer s failure to file and pay his tax liability was due to reasonable cause and not willful neglect based on the record and the complexity of the issue involved. Consequently, the assessment of the failure to pay penalty and the failure to file penalty are not sustained for the 2014 tax year. 17
C. Interest Interest must be assessed on the sustained tax delinquencies for use of the states tax dollars. Ark. Code Ann. 26-18-508 (Repl. 2012). DECISION AND ORDER The assessment is sustained after the removal of the penalties. The file is to be returned to the appropriate section of the Department for further proceedings in accordance with this Administrative Decision and applicable law. Pursuant to Ark. Code Ann. 26-18-405 (Supp. 2015), unless the Taxpayer requests in writing within twenty (20) days of the mailing of this decision that the Commissioner of Revenues revise the decision of the Administrative Law Judge, this Administrative Decision shall be effective and become the action of the agency. The revision request may be mailed to the Assistant Commissioner of Revenues, P.O. Box 1272, Rm. 2440, Little Rock, Arkansas 72203. A revision request may also be faxed to the Assistant Commissioner of Revenues at (501) 683-1161 or emailed to revision@dfa.arkansas.gov. The Commissioner of Revenues, within twenty (20) days of the mailing of this Administrative Decision, may revise the decision regardless of whether the Taxpayer has requested a revision. The Taxpayer may seek relief from the final decision of the Administrative Law Judge or the Commissioner of Revenues on a final assessment by following the procedure set forth in Ark. Code Ann. 26-18-406 (Supp. 2015). DATED: August 9, 2017 18