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COOPERATIVE AGREEMENT ON DETERMINATION

OF DOMICILE

 

 

OCTOBER 1, 1996

 

 

SECTION 1 PURPOSE OF COOPERATIVE AGREEMENT

WHEREAS, the revenue departments or divisions of the member states are responsible for enforcing the tax laws of their states in a fair and consistent manner to obtain compliance from the residents of their respective states; and

WHEREAS, multiple taxation of identical income creates the appearance of unfairness and fosters increased non-compliance; and

WHEREAS, non-compliance diminishes lawfully due tax revenue as well as creates a higher burden on the compliant taxpayer; and

WHEREAS, the member states recognize that mutual cooperation among the group will enhance the ability to work collectively at reducing the potential for multiple taxation of residents’ income and to foster increased voluntary compliance in a cost effective manner;

NOW THEREFORE, the signatory states to this document agree among themselves to create a more uniform approach to the taxation of residents and a formalized process for resolving disputes in cases of multiple determinations of residency by member states’ revenue agencies.

SECTION 2 DETERMINATION OF DOMICILE STATUS

The problems associated with domicile and residency are difficult to address because of the subjective nature of this whole area. It is therefore critical that any parameters selected to determine the individual’s domicile be of a nature that would not be changeable at will or insignificant in nature. It is also important that the parameters be readily identifiable for ease of administration, increased voluntary compliance, and least burdensome to the compliant taxpayer.

The revenue agencies agree that the adoption of uniform criteria or factors which should be evaluated in determining an individual’s domicile would provide a fair evaluation of the facts and circumstances present in any individual cases being reviewed. This agreement establishes the criteria or factors which the member agencies shall evaluate in their determination of an individual’s domicile. The member agencies are free to consider any relevant additional factors which they believe provide further insight as to the individual’s intent for the establishment of a domiciliary status. All member agencies adopting additional criteria or factors agree to provide guidance to taxpayers and practitioners on such factors.

Uniform Determinative Factors:

[ enumerated   ]

SECTION 3 SITUS OF SELECTED INCOME CLASSES

The revenue agencies agree that the taxing jurisdiction to which earned income is sourced should be entitled to the tax revenue associated with such income. In instances where the income is sourced, but not taxed, to a state other than the state of domicile and the state of statutory residence, the state of domicile should be entitled to such revenue. The tax revenue associated with “non-sourced” income from intangible assets should belong to the taxpayer’s state of domicile.

Income from other sources such as, but not limited to, flow-through entities are not part of this agreement and each revenue agency must follow its own state laws regarding the reporting and taxability of such income.

SECTION 4 CREDIT FOR TAXES PAID

The member states agree that the preferred method for the elimination of double taxation of the selected classes of income is the utilization of a credit for taxes paid to the other jurisdiction. The state to which income is sourced shall be entitled to the tax on earned income and the states of domicile and statutory residence shall be required to give the individual a credit for taxes paid to another jurisdiction on such income. The state in which an individual is domiciled shall be entitled to the tax on income sourced to, but not taxed by. a state other than the state of statutory residence and “non-sourced” income such as from intangible assets with the state claiming statutory residence being required to give the individual a credit for taxes paid to the state of domicile on such income.

In instances where current state law does not provide for such a method or the agency does not have the regulatory authority for such an interpretation of existing law, the agency shall make every reasonable effort to seek a legislative or regulatory change that would allow for the utilization of this preferred method. The agencies shall comply with all statutory and regulatory requirements of their state and this agreement shall in no way be construed to bind an agency to this uniform approach.

SECTION 5 PROCESS FOR THE RESOLUTION OF DISPUTED CASES

The revenue agencies agree that a formalized process shall be available to taxpayers after two or more states have made an initial determination that the individual is domiciled in their state, and such process shall be available before the utilization of formal appeals processes available in each of the respective states. The timing for the process would reduce the costs associated with having to handle formal appeals in one or more jurisdictions. The process shall also allow the parties to walk away if an agreement cannot be reached, in which case the taxpayer could then proceed with the appeal process already available to him or her. A closing agreement, if permitted under state law, would be developed and signed by the parties assuming that the process developed a resolution to the conflict, in which case it would be binding for future years unless the taxpayer provided clear and convincing evidence that a change in domicile had occurred.

SECTION 6 SHARING OF DATA AND COMPLIANCE TECHNIQUES

The member states agree to share any data developed through their compliance techniques either voluntarily or through specific request from another party to this agreement. The sharing of any data shall be within the parameters of state confidentiality statutes and through the Exchange of Information Agreements currently in force among the member states.

SECTION 7 RATIFICATION OF AGREEMENT

The undersigned hereby ratify the Cooperative Agreement On Determination of Domicile to the full extent of permitted by their respective laws:

             JURISDICTION:             DATE APPROVED:

STATE OF ARIZONA

DEPARTMENT OF REVENUE

By: _____________________                                                                                               _____________

 

STATE OF CALIFORNIA

BOARD OF EQUALIZATION

By: ______________________                                                                                               ______________

 

STATE OF NEW MEXICO

DEPARTMENT OF REVENUE

By: _____________________                                                                                               _____________

 

STATE OF OKLAHOMA

DEPARTMENT OF REVENUE

By: _____________________                                                                                               _____________

 

STATE OF TEXAS

COMPTROLLER OF PUBLIC ACCOUNTS

By: ______________________                                                                                               ______________

 

STATE OF UTAH

DEPARTMENT OF REVENUE

By: ______________________                                                                                               ______________

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