Changing Residency for Illinois Tax Purposes, 40 S. Ill. U. L.J. 11 (2015)

Currently, Illinois is in a financial crisis. Amidst this crisis, the First District Appellate Court of Illinois, in 2012, decided Cain v Hamer. In Cain, the issue was whether a pair of snowbirds (retirees spending the winter months in a warmer climate and returning to Illinois each year) were residents of Illinois for income tax purposes when they spent roughly an equal amount of time in Illinois as in Florida. The court narrowed the issue of residency down to two important issues; namely, whether the taxpayers (the “Cains”) changed domicile, and if so, whether their visits to Illinois were temporary or transitory in purpose. Based on the facts of the case, the court held that the taxpayers were not residents of Illinois and their visits back to Illinois were for a temporary purpose. How the court came to this conclusion of Florida residency raises doubt, and may have a drastic impact on the future of Illinois income taxes given that the retiring baby boomer generation may be looking for lower taxes along with a warmer climate. This article reviews both the analysis done in Cain and the legislative and judicial responses. Part II focuses on the case itself and is divided in a similar fashion to the sequencing used by the court in Cain. First, this article looks at how the court determined if the Cains effected a change in domicile. Then this article examines how the court determined if their frequent returns to Illinois were for a temporary purpose. Part III turns to the concept of domicile and how it may be changed. The common law test for a change of domicile is compared with the test offered in the Illinois Administrative Code (the “Code”). The flaws in both tests are then examined. Finally, this section stresses importance for a court not to discard the ‘intent not to return’ element which exists in both tests. Part IV looks at the temporary or transitory purpose exception that allows Illinois to tax those domiciled in another state if their visits to Illinois are not temporary. Part IV analyzes and agrees with the approach taken by the court in Cain in looking at this residency exception to domicile in another state. Parts V and VI review the judicial and legislative responses to Cain. They begin by looking at the approaches used by other courts and then turn to the changes made by the Illinois Department of Revenue (the “Department”) regarding its definition of both domicile and residency. Part VII provides some guidance for those who wish to change residency by listing some important factors the Department will consider when determining whether a change in domicile has occurred. Finally, the conclusion disagrees with the “change of domicile” rule as used in Cain and suggests a change to the Code to guide courts with future domicile analysis