Did a worker abandon New Mexico domicile by taking a California job and apartment while keeping and renewing New Mexico vehicle documents?

Plain-English summary

Cary Brooks remained a New Mexico domiciliary while working in California, so his California wages were subject to New Mexico personal income tax. But he proved that he paid $1,713.77 of California tax on the same income and received a New Mexico credit for that amount.

Brooks grew up in New Mexico, graduated from the University of New Mexico, and worked for Intel in Rio Rancho. In July 2000, he took a web-master position with Mediadome in Santa Clara and later leased a Cupertino apartment with his girlfriend.

He notified his insurer of the California address but kept his New Mexico vehicle registration and driver's license. In September 2000, he returned to Albuquerque to buy a new vehicle and registered it in New Mexico using his father's Albuquerque address. In February 2001, he returned again to renew his New Mexico driver's license using the same address and signed that the application was true under penalty of perjury.

In February 2002, Brooks arranged to work remotely and moved back to Albuquerque with his girlfriend to be near their families.

The Department assessed $3,646 of 2000 New Mexico tax, plus penalty and interest, on all income shown on his federal return. Brooks argued that he became a California resident in July 2000.

Moving physically did not establish abandonment of domicile

Under the 2000 version of Section 7-2-2, residency was based on domicile. Domicile continued until changed, and a change required physical presence in the new state plus intent to abandon the old domicile and make a permanent home in the new place.

Brooks had physical presence in California, but his actions did not show abandonment of New Mexico. He affirmatively returned to New Mexico to buy and register a vehicle and later to renew his driver's license. He obtained neither a California license nor California registration.

Regulation 3.3.1.9(C) presumed a person holding a valid New Mexico driver's license, without a later license from another state, to be domiciled in New Mexico. His return to New Mexico in 2002 reinforced the conclusion that he retained his original domicile.

New Mexico taxed a resident's California wages

Section 7-2-11(A)(3) and Regulation 3.3.11.11 required New Mexico residents to allocate all compensation for personal services to New Mexico regardless of source. Brooks therefore had to include the Mediadome wages on his New Mexico return.

California tax produced a credit

Mediadome withheld $1,814.74 for California. Brooks filed a California return reporting $1,713.77 of tax and seeking a $100.17 refund.

Section 7-2-13 allowed a New Mexico resident a credit for tax paid to another state on income also included in New Mexico net income. The Department did not dispute Brooks's evidence, so the hearing officer ordered a $1,713.77 credit.

Result: protest GRANTED IN PART and DENIED IN PART. Brooks owed New Mexico tax on the California wages, reduced by the $1,713.77 California credit, plus applicable penalty and interest.

What this means for you

Workers taking an out-of-state assignment

Physical relocation alone may not change domicile. The decision looked for conduct showing abandonment of the old state and establishment of a permanent home in the new one.

Taxpayers keeping New Mexico licenses and registration

Renewing a New Mexico driver's license and vehicle registration can be strong evidence of continuing domicile, especially when no replacement documents are obtained elsewhere.

Residents earning wages in another state

New Mexico may include out-of-state compensation in resident income, but an other-state credit can reduce double taxation when the same wages are taxed elsewhere.

Taxpayers claiming an other-state credit

File the other state's return and preserve proof of the tax actually imposed and paid. Brooks received the credit only after producing that evidence.

Common questions

Q: Did Brooks live in California during 2000?
A: Yes. He worked there from July and leased an apartment, but physical presence was only one part of the domicile test.

Q: What facts showed continued New Mexico domicile?
A: He kept and renewed his New Mexico driver's license, registered a newly purchased vehicle in New Mexico, used an Albuquerque residence address, and later returned to live in Albuquerque.

Q: Why were the California wages taxable in New Mexico?
A: As a full-year New Mexico resident, he had to allocate all personal-service compensation to New Mexico under the cited law.

Q: How much California credit was allowed?
A: $1,713.77, the amount Brooks reported and paid to California.

Q: Did Brooks win the entire protest?
A: No. He won the credit but lost the residency issue and still owed the remaining New Mexico tax, penalty, and interest.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-17(C) — presumption that an assessment is correct
• NMSA 1978, §§ 7-2-1 et seq. — New Mexico personal income tax
• NMSA 1978, § 7-2-2 — 2000 definition of resident
• NMSA 1978, § 7-2-11(A)(3) — resident allocation of personal-service compensation
• NMSA 1978, § 7-2-13 — credit for tax paid to another state
• Regulation 3.3.1.9(B)-(C) NMAC — domicile definition and driver's-license presumption
• Regulation 3.3.11.11 NMAC — allocation of resident compensation

Cases cited:

• Holt v. New Mexico Department of Taxation & Revenue, 2002-NMSC-034, 133 N.M. 11, 59 P.3d 491
• Hagan v. Hardwick, 95 N.M. 517, 624 P.2d 26 (1981)
• Estate of Peck v. Chambers, 80 N.M. 290, 454 P.2d 772 (1969)

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Cary Brooks
• Decision PDF: D&O 06-13

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
CARY BROOKS TO ASSESSMENT OF No. 06-13
PERSONAL INCOME TAXES ISSUED
UNDER LETTER ID L0103438848

DECISION AND ORDER

A formal hearing on the above-referenced protest was held on July 20, 2006, before

Margaret B. Alcock, Hearing Officer. The Taxation and Revenue Department (“Department”)

was represented by Peter Breen, Special Assistant Attorney General. Cary Brooks (“Taxpayer”)

represented himself. Based on the evidence and arguments presented, IT IS DECIDED AND

ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. The Taxpayer moved to New Mexico with his parents when he was in the fourth

grade.

2. The Taxpayer attended elementary and high school in Albuquerque and graduated

from the University of New Mexico in 1999, after which he went to work for Intel Corporation in

Rio Rancho, New Mexico.

3. In June 2000, the Taxpayer was offered a position with Mediadome, Inc. in Santa

Clara, California.

4. In July 2000, the Taxpayer resigned his employment with Intel and began work as

a web master with Mediadome in California.

5. The Taxpayer initially shared a residence in California with two co-workers.
6. In early September 2000, the Taxpayer notified his automobile insurance company

of his new address. The Taxpayer did not change the registration on his vehicle, however, but

retained his New Mexico registration and driver’s license.

7. At the end of September 2000, the Taxpayer drove back to Albuquerque, where he

traded in his old vehicle for a Dodge Dakota.

8. The Taxpayer registered his new vehicle with the New Mexico Taxation and

Revenue Department, Motor Vehicle Division, listing his residence and mailing address as 5415

Candlewood Court NE, Albuquerque, New Mexico, which was also his father’s address.

9. After purchasing and registering the vehicle in New Mexico, the Taxpayer

returned to California with his girlfriend, who had been living in Albuquerque.

10. From October 2000 through February 2002, the Taxpayer leased an apartment in

Cupertino, California, where he lived with his girlfriend while continuing to work for

Mediadome.

11. In February 2001, the Taxpayer made a trip to New Mexico, during which he

renewed his New Mexico driver’s license, listing his residence and mailing address as 5415

Candlewood Court NE, Albuquerque, New Mexico. The Taxpayer signed a statement, under

penalty of perjury, that the statements made in his license application were true and correct.

12. In February 2002, the Taxpayer made arrangements to continue his work for

Mediadome from Albuquerque, and he and his girlfriend returned to New Mexico to be closer to

their families.

13. In June 2002, Mediadome went out of business and the Taxpayer was unemployed

for about three months before obtaining new employment in New Mexico.

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14. The Taxpayer was not registered to vote anywhere until 2003, when he registered

to vote in New Mexico.

15. The Taxpayer did not file a federal income tax return for the 2000 tax year until

March 2003.

16. In April 2001, the Taxpayer filed for an extension of time until July 1, 2001 to file

his 2000 New Mexico income tax return, but did not file a return by the extended due date.

17. The Taxpayer did not file a 2000 California income tax return.

18. In 2005, pursuant to an information exchange agreement, the Department received

information from the Internal Revenue Service concerning the income reported on the

Taxpayer’s 2000 federal income tax return.

19. On March 30, 2005, after determining that the Taxpayer had not filed a 2000 New

Mexico income tax return, the Department assessed the taxpayer for $3,646.00 of personal

income tax, plus penalty and interest, on the total amount of income the Taxpayer earned during

2000, as reported on his federal return.

20. On April 27, 2005, the Taxpayer protested the portion of the assessment

attributable to the income he earned in California, claiming that he was a part-year resident of

New Mexico during 2000 and did not owe tax on the income he earned after beginning work

with Mediadome in July 2000.

21. In support of his protest, the Taxpayer filed a New Mexico income tax return for

the 2000 tax year which allocated the income he earned from Mediadome to California and

reported tax due to New Mexico in the amount of $1,931.00. The Taxpayer also submitted a

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Form W-2 from Intel, showing that $1,706.00 of tax had been withheld from his wages, leaving a

balance due of $225.00.

22. After receiving the Taxpayer’s return, the Department adjusted its assessment of

tax principal to give the Taxpayer credit for the taxes Intel had withheld from his wages.

23. The Department refused to accept the Taxpayer’s claim to be a part-year resident

of New Mexico during 2000, maintaining that he had not abandoned his New Mexico domicile

and remained a full-year resident for purposes of state taxation.

24. At the administrative hearing held on July 20, 2006, the Taxpayer provided a copy

of his 2000 Form W-2 from Mediadome, Inc. showing that Mediadome withheld $1,814.74 from

the Taxpayer’s wages during the 2000 tax year and paid the withheld taxes to the State of

California.

25. The Taxpayer also provided a draft copy of a 2000 California tax return he had

prepared reporting tax due to California in the amount of $1,713.77 and requesting a refund of

$100.17 of the $1,814.74 withheld from his California wages.

26. The record was left open until July 27, 2006, to give the Taxpayer an opportunity

to file the 2000 California income tax return he introduced as a draft at the administrative

hearing. The Taxpayer subsequently submitted evidence that the return had been filed with

California by certified mail on July 24, 2006.

27. The Hearing Officer then notified the parties that she would leave the record open

for an additional two weeks and asked the Department’s attorney to submit a letter on or before

August 10, 2006, setting out the Department’s position concerning the Taxpayer’s right to claim

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a credit against his 2000 New Mexico income tax in the amount of the tax he reported and paid

to California. The Department did not file a response.

DISCUSSION

The two issues to be determined in this protest are: (1) whether the Taxpayer was a full-

year resident of New Mexico during 2000 and was therefore required to include the income he

earned in California on his 2000 New Mexico personal income tax return; and (2) if the Taxpayer

was a full-year resident of New Mexico in 2000, whether he is entitled to a credit for the $1,713.77

of tax he reported and paid to California.

Burden of Proof. NMSA 1978, § 7-1-17(C) states that any assessment of taxes made by

the Department is presumed to be correct. See also, Holt v. New Mexico Department of Taxation

& Revenue, 2002 NMSC 34, ¶ 4, 133 N.M. 11, 59 P.3d 491. Accordingly, it is the Taxpayer’s

burden to come forward with evidence and legal argument to establish that he is entitled to an

abatement of the Department’s assessment, in full or in part.

New Mexico Residency. Payment of New Mexico personal income tax is governed by

NMSA 1978, §§ 7-2-1, et seq. When a taxpayer has income that is taxable both within and

without New Mexico, NMSA 1978, § 7-2-11 allows the taxpayer to allocate and apportion certain

categories of income between New Mexico and non-New Mexico sources. Pursuant to § 7-2-

11(A)(3), New Mexico residents are required to allocate 100 percent of certain categories of

income—including compensation for personal services—to New Mexico, regardless of the

source of that income. See also, Department Regulation 3.3.11.11 NMAC. In this case, the

Taxpayer reported the income he earned from Intel between January and July 2000 on his New

Mexico income tax return, but did not report the income he earned from Mediadome between

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July and December 2000. If the Taxpayer retained his New Mexico residency throughout the

2000 tax year, however, he was required to report all of his compensation to New Mexico.

NMSA 1978, § 7-2-2 of the Income Tax Act, as it existed in 2000, defined the term

“resident” as follows:1

“resident” means an individual who is domiciled in this state during any part of
the taxable year; but any individual who, on or before the last day of the taxable
year, changed his place of abode to a place without this state with the bona fide
intention of continuing actually to abide permanently without this state is not a
resident for the purposes of the Income Tax Act.

For the years at issue, residency is synonymous with domicile. Regulation 3.3.1.9(B) NMAC

defines “domicile” as “a place of a true, fixed home and a permanent establishment to which one

intends to return when absent and where a person has voluntarily fixed habitation of self and

family with the intention of making a permanent home.” Once established, domicile “is

presumed to continue until it is shown to have changed….” Hagan v. Hardwick, 95 N.M. 517,

519, 624 P.2d 26, 28 (1981). A change of domicile requires both physical presence in the new

locality and an intention to abandon the old domicile and to make a home in the new dwelling

place. Estate of Peck v. Chambers, 80 N.M. 290, 292, 454 P.2d 772, 774 (1969).

In this case, there is no dispute that the Taxpayer had a physical presence in California

from July through December 2000. What is at issue is whether the Taxpayer intended to

abandon his New Mexico domicile and make California his permanent home. Although the

Taxpayer testified that he intended to remain in California indefinitely, his actions indicate

otherwise, including the following:

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Effective for 2003 and subsequent tax years, § 7-2-2 was amended to expand the definition of residency to include
persons who are physically present in New Mexico for 185 days or more during the taxable year. Laws 2003, ch.
275, § 1. The statutes and regulations cited in this decision are to the versions that were in effect during the 2000 tax
year.

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Upon moving to California, the Taxpayer notified his insurance company of his new
address in California, but did not register his vehicle in California.

In September 2000, more than two months after moving to California, the Taxpayer
returned to Albuquerque and purchased a new vehicle which he registered in New Mexico using
an Albuquerque address.

In February 2001, the Taxpayer made another trip to New Mexico to renew his New
Mexico driver’s license, listing the same Albuquerque address as both his residence and mailing
address. The Taxpayer signed a statement, under penalty of perjury, that the statements made in
his license application were true and correct.

A year later, in February 2002, the Taxpayer made arrangements to continue his work
for Mediadome from Albuquerque, and he and his girlfriend returned to New Mexico to be closer
to their families.

The facts show that while the Taxpayer may have changed his physical address to

California, he retained his connections to Albuquerque and did not abandon his New Mexico

domicile. Pursuant to Regulation 3.3.1.9(C) NMAC, an individual who holds a valid New

Mexico driver’s license, and has not subsequently obtained a driver’s license in any other state, is

presumed to be domiciled in New Mexico. In this case, it is clear that the Taxpayer’s failure to

obtain a California driver’s license or register his vehicle in California was not simply a product

of inertia. Nor was it based on a decision to simply delay obtaining California documentation

until his New Mexico license and registration had expired. Instead, the Taxpayer took

affirmative action to travel from California to New Mexico in order to purchase and register a

new vehicle in this state. A few months later, he again returned to New Mexico in order to renew

his New Mexico driver’s license. After a year-and-a-half in California, the Taxpayer arranged to

continue his work for his California employer long distance and returned to Albuquerque with

his girlfriend, who also had ties to New Mexico. Based on these facts, the Taxpayer has failed to

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meet his burden of proving that he had abandoned his New Mexico domicile and was no longer a

New Mexico resident at the end of the 2000 tax year.

Credit for Taxes Paid to California. As a full-year resident of New Mexico, the Taxpayer

was required to include the wages he earned in California as New Mexico income on his 2000

income tax return. New Mexico has taken steps, however, to insure that its residents are not

subject to double taxation on the same income. NMSA 1978, § 7-2-13 allows residents who owe

tax to another state on income that is also included in New Mexico net income to “receive a

credit against the tax due this state in the amount of the tax paid the other state with respect to

income that is required to be either allocated or apportioned to New Mexico.”

In this case, the Taxpayer has provided evidence that Mediadome, his California

employer, withheld $1,814.74 from the Taxpayer’s wages during the 2000 tax year and paid the

withheld taxes to the State of California. He has also provided evidence that he reported and

paid 2000 personal income taxes to California in the amount of $1,713.77, requesting a refund of

$100.17. The Department has not disputed the evidence provided by the Taxpayer. Accordingly,

the Taxpayer is entitled to claim a credit of $1,713.77 against the Department’s assessment of

New Mexico personal income tax for the 2000 tax year.

CONCLUSIONS OF LAW

A. The Taxpayer filed a timely, written protest to the assessment of personal income

taxes issued under Letter ID L0103438848, and jurisdiction lies over the parties and the subject

matter of this protest.

B. The Taxpayer was a full-year resident of New Mexico during the 2000 tax year, and

the income he earned in California during 2000 is subject to New Mexico personal income tax.

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C. The Taxpayer is entitled to claim a credit of $1,713.77 against his New Mexico

income tax liability for the 2000 tax year.

For the foregoing reasons, the Taxpayer's protest IS GRANTED IN PART AND DENIED

IN PART. The Department is ordered to apply the $1,713.77 of tax the Taxpayer reported and paid

to California as a credit against his 2000 New Mexico personal income taxes; the Taxpayer is

ordered to pay the tax liability remaining after application of the $1,713.77 credit, plus applicable

penalty and interest.

DATED August 11, 2006.

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