Tuesday, November 09, 2010

Utah State Taxes -- Residency Test

The Utah State Tax Commission is proposing a Residency Test for income tax purposes. This test would have three levels:

  1. The state in which the taxpayer's dependents, spouse, or taxpayer is enrolled in public school or state universities.
  2. The address where the taxpayer is registered to vote.
  3. Whether the taxpayer has property in Utah, and is benefiting from the 45% valuation exemption on a primary residence.
I applaud the state's efforts. This has been an issue where the Utah State Tax Commission has repeatedly overstepped its bounds. They have pursued residency in cases as minuscule as the taxpayer having toys (atv's, snowmobiles, etc) licensed in Utah. Clear and reasonable guidance is long overdue.

One problem I see with this rule, and the problems may depend on the final language of the bill that passes the legislature, is the rule establishing residency if the taxpayer of spouse is enrolled in a Utah university or college. For example, if the final law says any of the three establish residency, than someone from Mesquite NV could become an unwitting resident (or recipient of a Utah state tax examination) by virtue of attending the nearest institute of higher education -- Dixie State College.

I think it would be wiser for the residency test to end at the enrollement of the taxpayer and the spouse's children in Utah K-12 schools. That way commuters to Utah institutes of higher education don't need to fear being improperly assessed Utah taxes.

Regardless, this proposed legislation is good step forward in saving taxpayers money in needless litigation and protecting taxpayers from overreaching Utah State Tax Commission auditors.

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