When is a “Texan” who owns a home in Texas, operates a business in Texas, extended family lives in Texas, bank, insurance and doctor are all in Texas and whose wife is a Texas resident really a “Montanan?” According to the Montana Supreme Court, when the “resident of Texas” has a Montana driver’s license, Montana hunting and fishing license, concealed carry permit, votes in Montana, and registers vehicles in Montana.
In Greenwood v. Montana Department of Revenue, 2020 MT 149, the Montana Supreme Court recently ruled that the “Texan” was actually a Montana resident for purposes of paying Montana state income tax.
Under Montana law, the state of Montana may assert income taxation over the worldwide income of a resident of Montana. See § 15-30-2112, MCA. One may be determined to be a resident if he or she is “domiciled in the state of Montana.” § 15-30-2108, MCA. In addition, a residence is “the place where a person remains when not called elsewhere for labor or other special or temporary purpose and to which the person returns in reasons of repose.” § 1-1-215, MCA. A taxpayer may also be taxed as a resident in Montana if he or she maintains a permanent place of abode in Montana and has not established a residence elsewhere.[1]
So what happens with the taxpayer insists that he or see is a resident of another state but has connections with Montana in the form of work, property, family or the like? The Montana Supreme Court noted that for residency determinations, “’[m]ore weight or importance will be given to a person’s acts than his declarations, and when they are inconsistent, the acts will control.”[2] Unlike some states, Montana does not rely upon how many days of the year the taxpayer was located in Montana, although this may be one factor in determining residency.
In dealing with a Montana residency audit, the taxpayer will typically be supplied with a residency questionnaire by the Montana Department of Revenue. Great care must be taken to accurately fill out the questionnaire to answer truthfully but also not to make any admissions against interest that need not be admitted or that need to be answered with delicacy and nuance. The taxpayer should also marshall all evidence to demonstrate out of state ties, including:
- Place of property ownership
- Location of personal possessions including photos, houseware, computers
- Place of work or business
- Vehicle registration
- Banking
- Execution of will
- Homestead declaration
- Address used on federal tax returns
- Business and professional licenses
- Location of children
- Church attendance
- Charitable organization donations or volunteering
I have handled many residency audits that have resulted in a finding of no Montana residency. However, Greenwood will make a taxpayer’s arguing to not be considered a Montana resident much more difficult if the taxpayer owns in-state hunting, fishing and drivers licenses along with voting in Montana. However, instead of conceding residency without a further analysis, I suggest that the taxpayer contact tax counsel to first review the factors to determine whether a challenge to residency may be warranted.
Jared M. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] Greenwood, ¶ 14.
[2] Id. at ¶ 20.