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As a matter of both tax policy and constitutional law, it is time to apportion state personal income taxes to eliminate the double taxation of dual residents. Individuals who, for income tax purposes, are residents are two or more states should be taxed along the lines recently proposed by Minnesota Governor Mark Dayton for “snowbirds”: As to income with respect to which a state has source jurisdiction, that state should tax such income. As to income which two or more states tax only on the basis of residence, such states should apportion, based on the dual resident’s relative presence in each state of residence. This apportioned approach would eliminate the double taxation of dual residents’ income and would comport better with modern patterns of residence and mobility.

While Minnesota’s legislature did not adopt the Dayton proposal, that proposal should provoke reconsideration of the conventional understanding of personal residence for state income tax purposes. The traditional understanding can cause double taxation when an individual is deemed to be a resident of two or more states, each entitled to tax this dual resident’s entire income. As a matter of tax policy and constitutional law, the formula advanced by Governor Dayton for Minnesota snowbirds is the proper way to tax all dual residents. As to income with respect to which a state has source jurisdiction because the income arises within the state’s geographic boundaries, that state should tax that income, whether or not the taxpayer is a resident of such state. As to income with respect to which two or more states have only residence-based jurisdiction to tax, the states of residence should tax on a proportionate basis, based on the part of the year the dual resident spends in each state. In practice, the income apportioned between states of residence under this approach will typically be dual residents’ intangible investment income such as dividends and interest. To eliminate double residence-based taxation of such income, the Dayton formula should, both as a matter of tax policy and of constitutional law, apply to all individuals who are, for tax purposes, residents of two or more states.

The Dayton proposal highlights the obsolescence of current tax policy and constitutional norms for states’ personal income taxation of residents, norms fashioned for an earlier era. It is time to shift from the traditional personal income tax regime with its increasing possibilities of double residence-based taxation to a system which recognizes multiple states of residence and apportions personal income tax authority among them as to items which are not geographically sourced to the taxing state.

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state income tax, Tamangi v. Tax Appeals Tribunal, domicile



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