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Tag Archive for Defining Residence For Income Tax Purposes

Defining Residence For Income Tax Purposes

Edward Zelinsky- Defining Residence


In this paper, I place the United States’ adherence to citizenship-based taxation in the context of the states’ tax systems. Fortyone states impose general income taxes on the worldwide incomes of their respective residents. 1 These state tax systems are important repositories of experience that confirm the administrative benefits of citizenship-based taxation. Domicile today plays an important role in state tax systems as a gap-filler when more objective statutory residence laws fail to assign any state of residence to the taxpayer. Citizenship is an administrable proxy for domicile and serves a similar gap-filling role in the taxation of individuals whose income and activities straddle national boundaries.

For income tax purposes, most states today define residence as either domicile (the traditional definition) or as statutory residence, typically formulated as an individual’s satisfaction of an objective test such as 183 days spent in the state. 2 In contrast to the relatively objective nature of statutory [*272] residence laws, the fact-intensive domicile inquiry focuses upon the taxpayer’s intent to return to the taxing state and his permanent allegiance to that state, rather than his immediate physical presence in the state. 3 As the domicile inquiry is factually complex, it is both manipulable by the taxpayer and difficult for the tax collector to enforce. The contemporary domicile standard is best understood as a gap-filler invoked by the states when the more objective test of statutory residence fails to assign the taxpayer to any state of residence.

The states’ difficulties enforcing domicile-based taxation highlight the administrative benefits of citizenship-based taxation. As long as residence is understood for tax purposes in terms of domicile, citizenship is an efficient proxy for such domicile. The states’ experience defining residence supports the United States’ citizenship-based approach to federal income taxation. Under the Internal Revenue Code, citizenship serves as an administrable proxy for domicile and fulfills the same gap-filling function played by domicile under the states’ income taxes.

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