The Massachusetts Legislature recently enacted Chapter 38 of the Acts of 1995 which, among other things, modifies the definition of "resident" found in General Laws Chapter 62, section 1(f). The purpose of this Technical Information Release ("TIR") is to explain the changes made by St. 1995, c. 38, s. 65. The new language reads as follows:
(f) "Resident" or "inhabitant", (1) any natural person domiciled in the commonwealth, or (2) any natural person who is not domiciled in the commonwealth but who maintains a permanent place of abode in the commonwealth and spends in the aggregate more than one hundred and eighty-three days of the taxable year in the commonwealth, including days spent partially in and partially out of the commonwealth. For purposes of clause (2), a day spent in the commonwealth while on active duty in the armed forces of the United States shall not be counted as a day in the commonwealth. The word "non-resident" shall mean any natural person who is not a resident or inhabitant.
These changes are effective for tax years ending on or after July 1, 1995. For tax returns due for the taxable year ending on December 31, 1995, all days in the 1995 calendar year count in calculating the number of days spent in Massachusetts.
For Massachusetts income tax purposes, the determination of an individual's status as a resident or non-resident is essential. Under G.L. c. 62, § 2, a resident's entire income is subject to tax, notwithstanding a resident's ability to make use of various credits, deductions, and exemptions to offset tax liability. This includes the credit under G.L. c. 62, § 6(a), for taxes paid to other states. A non-resident, however, is taxed only on income derived from or connected to sources in Massachusetts. G.L. c. 62, § 5A.
Examples of such taxable income include income connected with any trade or business, including any employment, carried on in the commonwealth, any lottery or wagering transactions, or the ownership of any interest in real or tangible personal property in Massachusetts. Id.
B. Determining Domicile
A person who is domiciled in Massachusetts is considered a resident of Massachusetts. In the absence of a statutory definition of domicile, the Department looks to common law concepts in fashioning a definition. See Commonwealth v. Davis, 284 Mass. 41 (1933). Domicile is "the place which is an individual's true, fixed and permanent home, determined by established common law principles and the facts and circumstances in each case." 830 CMR 62.5A.1(2), Non-resident Income Tax. A domicile determination is largely a factual determination that takes into consideration many factors relating to a person's social, economic and political life.
A person's intent to make a place his permanent home is also significant when determining domicile. Davis, 284 Mass. at 50. It must be noted, however, that a person's domicile is different from his or her residence. A person can have only one domicile, but can have many places of residence. See Doyle v. Goldberg, 294 Mass. 105, 108 (1936) and cases cited therein; Bailey and Van Dorn, Massachusetts Practice, Vol. 4 § 492 (1986).
Example. Linda and Paul consider their domicile to be in Massachusetts. They own a home in Massachusetts in which they reside for half of April, May, and September through December each year. Linda and Paul have driver's licenses, bank accounts, and credit card accounts in Massachusetts. Their children and grandchildren live in Massachusetts, as well as most of their friends. Linda and Paul also have a summer home on the coast of Maine which they live in during the months of June through August. Linda and Paul spend the rest of the year in their condominium in Florida. Linda and Paul are residents of Massachusetts for tax purposes, even though they do not spend more than 183 days per year in the state, because they are domiciled in Massachusetts.
C. Permanent Place of Abode and Presence in Massachusetts
1. Permanent Place of Abode
The new definition of resident provides that a person can be considered a resident even if that person is not domiciled in Massachusetts. A resident is a person who maintains a permanent place of abode in Massachusetts and spends more than 183 days of the taxable year in Massachusetts.
Whether a person maintains a permanent place of abode in Massachusetts is a factual determination. The Department of Revenue interprets a "permanent place of abode" to mean a dwelling place continually maintained by a person, whether or not owned by such person, and will include a dwelling place owned or leased by a person's spouse.
A permanent place of abode generally will not include the following:
during the term of a lease, a dwelling place owned by an individual who leases it to others, not related to the owner or his or her spouse by blood or marriage, for a period of at least one year, where the individual has no right to occupy any portion of the premises and who does not use such premises as his or her mailing address during the term of the lease;
a camp, military barracks, dormitory room, hospital room or room in any other similar temporary institutional setting;
a hotel or motel room, but a determination will be made based on the facts and circumstances of each individual's situation;
a dwelling place completely lacking both kitchen and bathing facilities, or a dwelling place that is not winterized;
a dwelling place that is maintained only during a temporary stay in Massachusetts for the accomplishment of a particular documented purpose. A temporary stay is defined as a predetermined period of time not to exceed one year.
The following examples illustrate the meaning of permanent place of abode.
Example. Charles is domiciled in New Jersey. He is transferred to his employer's Massachusetts office for an assignment from February 1 to October 31, 1995, after which he returns to New Jersey. If Charles takes an apartment in Massachusetts during this period, he will not be deemed a resident, even though he spends more than 183 days of the taxable year in Massachusetts, because his place of abode is not permanent. Instead, Charles will be subject to tax as a non-resident on his income from Massachusetts sources, including any salary or other compensation for services performed in Massachusetts.
Example. Terri is domiciled in Pennsylvania. She is transferred to her employer's Massachusetts office for an assignment from August 1, 1995 to August 1, 1996. If Terri takes an apartment in Massachusetts during this period, she will not be deemed a resident, even though she spends more than 183 days of the taxable year in Massachusetts, because her place of abode is not permanent.
However, Terri's assignment is extended and she stays in Massachusetts until December 1, 1996. Terri's stay in Massachusetts is no longer considered temporary. As a result, for the taxable year ending December 31, 1995, Terri is considered a non-resident and, as such, will be subject to tax only on her income from Massachusetts sources, including any salary or other compensation for services performed in Massachusetts. For the taxable year ending December 31, 1996, however, Terri is considered a Massachusetts resident because she maintained a permanent place of abode and was present in Massachusetts for more than 183 days.
Example. Donna is an out-of-state student attending a university in Massachusetts. She lives in a room in one of the dormitories on the university campus. She shares her room with another student. Donna also shares bathing facilities with other students who live on the same floor. Donna lives at the dormitory for the entire school year, which runs from late August 1994 through May 1995. When the school year ends, Donna moves out of the dormitory and resides out-of-state. Donna returns to the university in August 1995 to begin her junior year and again resides in a dormitory room on campus. Although Donna is present in Massachusetts for more than 183 days in 1995, her dormitory room is not considered a permanent place of abode. Therefore, Donna is not considered a resident of Massachusetts for 1995.
Example. Frank is a student at a university in Massachusetts. He lives in an off-campus apartment near the university with three other individuals. All four roommates share living expenses, including expenses for utilities, phone and cable television service. Frank lives in the apartment for more than 183 days in 1995. Since Frank is present in Massachusetts for more than 183 days and is maintaining a permanent place of abode, Frank is considered a resident of Massachusetts for 1995, even if his domicile is elsewhere and he intends to leave Massachusetts upon his future graduation.
2. Presence in Massachusetts
Not only must a person maintain a permanent place of abode in Massachusetts, but a person must also spend more than 183 days in Massachusetts to meet the definition of a resident. For purposes of determining presence in Massachusetts, a day is defined as any part of a day spent in Massachusetts for whatever reason. However, for members of the United States Armed Forces, days spent in Massachusetts while on active duty will not be considered days spent in Massachusetts for purposes of establishing whether the member is a resident of Massachusetts.
Example. Alice owns a house in northern New Hampshire and rents an apartment in Boston, where she works 4 days a week. Alice spends 3 nights and 4 days in Massachusetts each week. The remaining time she spends in her home in New Hampshire. Alice considers her domicile to be New Hampshire and most of her social, political, economic, and familial ties are connected to that state. Alice takes three weeks vacation a year, or 12 days, all of which she spends outside of Massachusetts. She receives 10 paid holidays from her employer each year and spends the holidays outside of Massachusetts. For the year from January 1st to December 31st, Alice has spent 186 days in Massachusetts and 179 in New Hampshire and elsewhere. Even though her domicile may be located in New Hampshire, Alice is subject to tax as a Massachusetts resident for the year since she spent more than 183 days in Massachusetts and maintained a permanent place of abode here. As a resident, Alice must file Form 1 by April 15th of the following year.
D. Rules for Part-year Residents
A part-year resident for Massachusetts income tax purposes is a person who either moves to Massachusetts during the taxable year and becomes a resident or a person who terminates his Massachusetts residency during the taxable year to establish a residence outside the state. A determination of whether a person is a part-year resident and when residency commences or terminates depends on facts and circumstances relevant to each person's situation. For the period of time that a person is a resident of Massachusetts, all income earned during this time is subject to tax under G.L. c. 62, § 2. For the period of time that a person is not considered a resident, only that income that is derived from sources in Massachusetts, as detailed in G.L. c. 62, § 5A, is subject to tax. For additional information concerning tax reporting and return filing for part-year residents, see Form 1-NR/PY and its instructions.
Example. Ben has lived in an apartment in Massachusetts for the past ten years. On August 15, 1995, Ben terminated his lease and moved to California. He had no intention of returning to Massachusetts and from that point on made California his permanent home. On October 1st of the same year, Ben realized a capital gain not connected to Massachusetts source income. For the period January 1 to August 14, 1995, Ben is considered a resident of Massachusetts. As a resident, any income he earned during this period, from whatever source, is subject to Massachusetts income tax. From August 15 to December 31, 1995, however, Ben is considered a non-resident of Massachusetts. As a non-resident, Ben will be subject to tax only on income that is connected to or derived from sources in Massachusetts. The capital gain he realized on October 1st will not be subject to Massachusetts tax because he was not a resident when he realized the gain and because it was not connected to sources in Massachusetts.
Example. Kelly and Jim have lived in Massachusetts for the past five years. They are homeowners and calendar year taxpayers. Kelly receives notice from her employer that she is being transferred to the company's office in Connecticut. On September 1, 1995, Kelly and Jim move to Connecticut. They put their house in Massachusetts on the market for sale with a local real estate office but leave it furnished. Thus, the house remains available for their immediate occupancy. An offer is made for the house on October 1, 1995. At that time, Kelly and Jim arrange to have the furniture shipped to their home in Connecticut. The house is sold on December 1, 1995. Under the facts of this example, Kelly and Jim are part-year residents for 1995. For the period from January 1 through October 1, 1995, they are considered residents because they have spent more than 183 days of their taxable year in the state and they maintained a permanent place of abode in Massachusetts during this period. As residents, any income they received during this period, from whatever source, is subject to Massachusetts personal income tax. For the period from October 2 through December 31, 1995, however, Kelly and Jim are considered non-residents because they no longer "maintain" a permanent place of abode in Massachusetts and only income they receive (such as any gain on the sale of their Massachusetts home) that is connected to or derived from sources in Massachusetts will be subject to tax.
Commissioner of Revenue
January 10, 1996