Presumably we all learn as kids that we can't hoard and save our favorite delicacy and enjoy it at the same time. "You can't eat your cake and have it, too." It's one of those hard life lessons that once learned, serves us well throughout the rest of our lives.
Apparently, not everybody learns it. Joe Kristan on Roth & Company's blog (rothcpa.com) gives a good review of a typical tax case involving an attempt to do just that--keep your home where your family is, but claim a (tax-advantaged) home where your job and convenient apartment for weekdays is located. The case is Schmitz vs. Iowa Department of Revenue, Court of Appeals of Iowa No. 2-583. The blog post is: Joe Kristan, Home is where the heart is. And the house, wife, kids, cars... , Rothcpa.com (Sept. 20, 2012).
A few excerpts from Joe's post will give you the gist of this executive's claim of a South Dakota (low tax state) instead of Iowa (higher tax state, family home) for income tax purposes. It was a no-go.
An executive got transferred from his employer’s Iowa office to Dakota Dunes, South Dakota. His wife balked at the move, so he rented an apartment in South Dakota and came home on weekends. Noting the difference between the income tax rates in South Dakota (0%) and Iowa (8.98%), he chose to file as a South Dakota resident.
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It may possible to have a domicile in a different state than your spouse — like former power couple Arnold Schwarzenegger and Maria Shriver. But it isn’t easy, and you can’t take shortcuts if you try. An Iowa appeals court yesterday said the taxpayer didn’t try hard enough.
The executive, it appears, had kept bank account, drivers license, voter registration, five family cars, "vanity plates" on his own car--all in Iowa. He had an apartment in South Dakota where his new job was, but he didn't stay there on weekends. And perhaps the most glaringly wrong thing to do--he filed for a homestead property tax credit on his Iowa home, for which he had to declare Iowa his residence for tax purposes! Yet he tried to avoid filing Iowa income tax returns, under the claim that he was a South Dakota resident. Needless to say, he was unsuccessful: the Iowa court determined that he owed more than $290 thousand in Iowa taxes, penalties and interest.