Houghton v. Neb. Dep't of Revenue

• Decision Date: 15 January 2021
• Docket Number: No. S-20-176.,S-20-176.
• Parties: Thomas and Pamela HOUGHTON, husband and wife, appellants, v. NEBRASKA DEPARTMENT OF REVENUE, an agency of the State of Nebraska, and Tony Fulton, Tax Commissioner, appellees.
• Court: Nebraska Supreme Court

308 Neb. 188

953 N.W.2d 237

Thomas and Pamela HOUGHTON, husband and wife, appellants,

v.NEBRASKA DEPARTMENT OF REVENUE, an agency of the State of Nebraska, and Tony Fulton, Tax Commissioner, appellees.

No. S-20-176.

Supreme Court of Nebraska.

Filed January 15, 2021

INTRODUCTION

This Administrative Procedure Act appeal centers on whether income taxpayers abandoned their domicile in Nebraska and acquired a domicile in the United Kingdom (U.K.). The Tax Commissioner and the district court concluded that the taxpayers did not meet their burden of proof. Although the move to a foreign country presents an additional, unusual circumstance, our standard of review drives the outcome. Because competent evidence supported the district court's factual findings, we affirm its judgment.

BACKGROUND

NEBRASKA DEPARTMENT OF REVENUE PROCEEDINGS

In February 2016, the Department of Revenue issued to Thomas and Pamela Houghton a notice of proposed deficiency determination for individual income tax for tax years 2012 to 2014. Together, the notices identified the total amount of taxes, interest, and penalties due as $73,477.61.

The Houghtons protested the income tax deficiency determination and requested a redetermination that no money was due.

They claimed that the U.K. was their domicile.

The Houghtons sought to challenge the constitutionality and validity of a Nebraska regulation. The regulation stated, in relevant part, that "[a]ny citizen residing outside the United States (U.S.) whose last domicile within the U.S. was within Nebraska will continue to be a Nebraska resident until the person ... establishes residence as a permanent resident alien in a foreign country ...."¹ The Tax Commissioner declined to determine the validity of the regulation or to apply it. The district court likewise did not apply the regulation. During oral argument to this court, counsel for the Department of Revenue asserted that the regulation should not be relied upon here, and we have not done so.

In 2018, a hearing was held on the Houghtons’ petition for redetermination of individual income tax. The evidence consisted of testimony by both of the Houghtons and an audit supervisor of the Department of Revenue, and documents submitted by the parties. The evidence established that Thomas has been in the "payments processing business" since 1987. He worked for ACI Worldwide until 1997 and again from October 2000 to December 2011. The Houghtons lived in Nebraska for most of Thomas’ employment with ACI Worldwide. But on two occasions—from January 1990 to March 1992 and from December 2000 to October 2004—they lived in the U.K. During the latter stay, the Houghtons "were headed towards citizenship when the company requested that [Thomas] move back to the U.S."

Between 2008 and 2011, while residing in Nebraska, the Houghtons discussed living in the U.K. They decided that if they moved back to the U.K. for a third time, they would stay and become citizens. There is no dispute that the Houghtons were domiciled in Nebraska prior to moving to the U.K. in 2011.

In October 2011, Thomas accepted employment with a U.K. company. The position was permanent rather than an assignment. They moved to the U.K. in December. Pamela testified that although it was their third time living in the U.K., "[t]his time it was not as an expat, it was a legitimate job [Thomas] was taking for long term."

In 2012, Thomas received compensation from ACI Worldwide related to his employment in Nebraska through December 2011. The Houghtons, who have continued to employ an accountant in Nebraska to prepare their federal and state income tax returns, filed a "Special Capital Gains/Extraordinary Dividend Election and Computation" form with their 2012 Nebraska tax return. On that form, Thomas signed beneath the following statement: "I hereby elect to receive the special capital gains/extraordinary dividend treatment provided under Neb. Rev. Stat. § 77-2715.09, and declare under penalties of perjury that to the best of my knowledge and belief, the capital stock described above qualifies for the special capital gains/extraordinary dividend election." That statute allows an election by a "resident individual."²

The Nebraska income tax returns that the Houghtons filed for tax years 2012 to 2014 listed their address in the U.K. They computed Nebraska tax using the schedule for nonresidents and partial-year residents. The Houghtons were taxed as residents of the U.K. during the tax years at issue. They used a U.K. accountant in connection with their U.K. income tax.

When the Houghtons left Nebraska in December 2011, they retained ownership of two properties in Nebraska. One, purchased in 2004, served as their primary residence until they moved to the U.K. The other, purchased in June 2011, was purchased with the intent that it be an investment property.

Both were listed as rental property after the Houghtons moved to the U.K. Thomas explained that at the time of the 2011 purchase, the market was down, which made it a good time to buy but not a good time to sell. The Houghtons sold both Nebraska properties in 2017. Thomas testified that the markets made it "a good time to sell." The Houghtons also owned real estate in Georgia and California.

The Houghtons did not own property in the U.K. Thomas characterized purchasing property in the U.K. as "complicated." He elaborated that a purchase of property is generally on a 99-year lease—which is not attractive—and that freeholds are difficult to find. Further, moving capital from the United States into the U.K. is considered a "taxing event" by the U.K.

In March 2011, Thomas sought work permission from the U.K., including a dependency endorsement for Pamela. The Houghtons obtained a "Tier 2" general visa with a validity date from July 2011 to August 2014. In April 2014, the Houghtons received an extension of the Tier 2 general visa with an expiration date of August 2017. In May 2016, the Houghtons applied for indefinite leave to remain (ILR), which was granted in June. Thomas testified that a person has to live in the U.K. for 5 years before seeking ILR. Once a person obtains ILR status, he or she can live in the U.K. for life. After ILR is granted, a person must wait 12 months before applying to become a U.K. citizen. The Houghtons complied, and they were sworn in as British citizens in February 2018.

An individual seeking to become a U.K. citizen is allowed to be out of the country for 450 days during a 5-year window. The Houghtons began keeping a log of all of their travel "immediately from the time that [they] went over there with the intent of becoming naturalized citizens." The record contains a "schedule of absences," which Thomas testified is part of the submission for ILR and for naturalization. The document showed each of the Houghtons’ absences from the U.K. from 2011 to May 2016, along with the reason for travel and the number of days involved for each event. The schedule of absences showed that the Houghtons returned to Nebraska a number of times during 2012 through 2014, spending as many as 40 days in 2012 and as few as 14 days in 2014. The visits were typically family related.

During the relevant tax years, Thomas possessed driver's licenses in Nebraska, California, and the U.K. His Nebraska license expired in 2015, and he did not take any action to renew it. The Houghtons "used the Overseas Voting Act" to vote in the 2012 federal presidential election. When they moved from Nebraska, they resigned from their country club and sold their only vehicle. In the U.K., the Houghtons joined a country club and purchased two vehicles. They took all items of sentimental value with them to the U.K. They do not have any Nebraska bank or financial accounts, but they have checking and savings accounts in the U.K.

TAX COMMISSIONER'S DETERMINATION

The Tax Commissioner determined that the Houghtons failed to sustain their burden of proof. He relied on Nebraska case law concerning domicile. The Tax Commissioner stated that the Houghtons’ "right to remain within the [U.K.] had an expiration date" and that because they "did not have the right to remain in [the U.K.] beyond the expiration of their restricted work visas[,] there could not have been an intention to stay beyond that point." The Tax Commissioner determined that the Houghtons did not abandon their Nebraska domicile until they established permanent residency in the U.K. in 2016.

The Tax Commissioner noted two additional facts. One, the Houghtons’ retention of their Nebraska real estate until they obtained ILR status, which led the Tax Commissioner to remark that if they were "forced to return to the United States their former residence would serve as a ‘soft landing spot.’ " The other was Thomas’ sworn statement of Nebraska resident individual status in connection with the special capital gains election in 2012.

DISTRICT COURT PROCEEDINGS

The Houghtons filed a petition on appeal. They requested that the Tax Commissioner's decision be set aside. They also sought a determination that they were not subject to additional income taxation, interest, and penalties for tax years 2012 to 2014.

DISTRICT COURT'S JUDGMENT

The district court affirmed the Tax Commissioner's determination. The court also relied on Nebraska case law setting forth how one acquires a domicile by choice.

The district court determined that the additional facts noted in the Tax Commissioner's order supported the Tax Commissioner's finding. With regard to the Houghtons’ retention of their former Nebraska home, the court stated that it deferred to the Tax Commissioner's judgment as to credibility when it found that such retention supported the conclusion that the Houghtons did not abandon their Nebraska domicile until after they established permanent residency in the U.K. The court also agreed with the Tax Commissioner that the Houghtons’ claim to not be Nebraska residents was inconsistent with the sworn statement by Thomas that he believed he was...