Kocher v. DEPARTMENT OF REVENUE OF STATE

• Decision Date: 11 December 2003
• Docket Number: No. 1 CA-TX 03-0002.,1 CA-TX 03-0002.
• Citation: 80 P.3d 287,206 Ariz. 480
• Parties: Joel J. KOCHER and Annmarie Kocher, husband and wife, Plaintiffs-Appellants, v. DEPARTMENT OF REVENUE OF the STATE OF ARIZONA, Defendant-Appellee.
• Court: Arizona Court of Appeals

80 P.3d 287

206 Ariz. 480

Joel J. KOCHER and Annmarie Kocher, husband and wife, Plaintiffs-Appellants, v. DEPARTMENT OF REVENUE OF the STATE OF ARIZONA, Defendant-Appellee.

No. -0002.

Court of Appeals of Arizona, Division 1, Department T.

December 11, 2003.

Hawley Nystedt & Fletcher, P.C. By Gerald G. Hawley and Gary L. Fletcher, Tucson, Attorneys for Plaintiffs-Appellants.

Terry Goddard, Attorney General By Lisa A. Neuville, Assistant Attorney General, Phoenix, Attorneys for Defendant-Appellee.

OPINION

WINTHROP, Judge.

¶ 1 This appeal arises out of the tax court's judgment that Joel J. and AnnMarie Kocher ("Taxpayers") were Arizona residents throughout the 1995 tax year. We affirm.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 Joel Kocher served as Vice President of Sales for Dell Computer Corporation in Austin, Texas from 1987 until September 1994. He terminated his employment in October 1994 in accordance with a detailed written severance agreement. Joel agreed not to compete against Dell in any similar desk-top computer business until October 31, 1996. In exchange, Dell granted Joel an accelerated right to exercise his Dell stock options.

¶ 3 In October 1994, Joel accepted employment as chief operating officer of Artisoft, a computer software company in Tucson, Arizona, for an indeterminate period of time. Joel testified that he needed this job because he had recently been divorced and had a $3000 monthly support obligation for his children in Texas. He further testified that he had little financial liquidity due to federal "insider trading" restrictions on the timing of selling his Dell stock or exercising his Dell stock options.

¶ 4 Shortly after moving to Arizona, Joel learned that his fiancee, AnnMarie, was pregnant. He accelerated plans to marry AnnMarie and move her and her two sons to Arizona. AnnMarie experienced medical problems in November 1994 and stopped working. Taxpayers were married in Tucson on December 1, 1994. In the affidavit for a marriage license, Joel swore that he was a resident of Tucson, Arizona.

¶ 5 Before marrying AnnMarie, Joel bought a $750,000 home in Tucson. He later testified that he had purchased a house that he could "flip" quickly when the opportunity to return to Texas materialized. However, Joel also testified that he had received a "good deal" on the home because the prior owner was having trouble selling it. Joel moved into the Arizona home in December 1994 and spent time with AnnMarie in Arizona around Christmas 1994.

¶ 6 For the 1994 tax year, Joel filed an income tax return for part-year Arizona residents that he signed under penalty of perjury. Taxpayers also filed a part-year Arizona return for the 1996 tax year.¹ For the 1995 tax year, Taxpayers' federal income tax return and original Arizona full-time resident tax return reported $5,602,965 in income from the exercise of the Dell stock options. Taxpayers subtracted that income from their Arizona gross income on their 1995 Arizona income tax return.

¶ 7 In 1999, the Arizona Department of Revenue ("ADOR") issued an assessment for the Arizona income tax due on this amount, with penalties and interest. Taxpayers protested the assessment of tax and penalties.² After exhausting their administrative remedies, Taxpayers appealed to the tax court.

¶ 8 After a one-day bench trial, the tax court found that Taxpayers were Arizona residents from late 1994 through October 1996. Accordingly, they were Arizona residents in 1995 and therefore not entitled to subtract the stock option income from the gross income listed on their Arizona tax return for that year. The tax court detailed its reasons in five pages of findings of fact and conclusions of law and entered a judgment. This appeal followed.

DISCUSSION

I. Standard of Review.

¶ 9 This court will sustain factual findings unless they are clearly erroneous. Combs v. DuBois, 135 Ariz. 465, 468, 662 P.2d 140, 143 (App.1982). A finding of fact is not clearly erroneous if substantial evidence supports it, even if substantial conflicting evidence exists. Moore v. Title Ins. Co. of Minn., 148 Ariz. 408, 413, 714 P.2d 1303, 1308 (App.1985). In applying the clearly erroneous standard to factual findings, we will "defer to any factual findings explicitly or implicitly made, affirming them so long as they are supported by reasonable evidence." Twin City Fire Ins. Co. v. Burke, 204 Ariz. 251, 253-54, ¶ 10, 63 P.3d 282, 284-85 (2003).

¶ 10 We also recognize that a finder of fact is not bound by the uncontradicted testimony of an interested party. City of Tucson v. Apache Motors, 74 Ariz. 98, 107-08, 245 P.2d 255, 261 (1952). Moreover, we will affirm a trial court's judgment if it is correct for any reason. St. Joseph's Hosp. v. Ariz. Health Care Cost Containment Sys., 185 Ariz. 309, 312, 916 P.2d 499, 502 (App. 1996).

II. Taxpayers Became Arizona Residents in 1994.

¶ 11 Arizona tax law defines the term "resident" to include "[e]very individual who is in this state for other than a temporary or transitory purpose." Ariz.Rev.Stat. ("A.R.S.") § 43-104(19)(a) (1980 & Supp. 1994). The statute creates a rebuttable presumption that an "individual who spends in the aggregate more than nine months of the taxable year within this state" is an Arizona resident. A.R.S. § 43-104(19)(c).

¶ 12 Of necessity, the question of residency under this statute involves evaluation of the taxpayer's intent and purpose for being in Arizona. While intent is arguably a subjective matter, our courts will also look to an individual's words, actions and other outward manifestations to determine intent. The "`intentions of a person are to be judged not only by his statements but also upon his conduct and the surrounding circumstances.' " McDowell Mountain Ranch Land Coalition v. Vizcaino, 190 Ariz. 1, 3, 945 P.2d 312, 314 (1997) (quoting O'Hern v. Bowling, 109 Ariz. 90, 92, 505 P.2d 550, 552 (1973)). For example, "[o]utward indicia, like a month-to-month lease, failure to order telephone service, failure to have the utility service transferred to one's own name, or failure to file a change of address with the post office, may rebut a personal declaration of intent to remain." Id. See also Webster v. State Bd. of Regents, 123 Ariz. 363, 367, 599 P.2d 816, 820 (App.1979) ("As recognized by our courts, once physical presence has been established, the key factor in resolving the domicile issue is intent, and the existence of the requisite intent becomes a question of fact that is evidenced by the conduct of the person in question.").

¶ 13 In DeWitt v. McFarland, the supreme court explained that the intent of the taxpayer necessary to establish legal residency "need not be one to remain in a given place for all time, it is generally sufficient if the intent be to make presently the given location one's home even though one may have in mind the possibility of making a change should future events demand." 112 Ariz. 33, 34-35, 537 P.2d 20, 21-22 (1975) (quoting State v. Dillett, 240 Wis. 465, 3 N.W.2d 699, 700 (1942)). "It is not important if there is within contemplation a vague possibility of eventually going elsewhere, or even of returning whence one came. If the new state is to be one's home for an indefinite period of time, he has acquired a new domicile." Id. at 34, 537 P.2d at 21 (citations omitted) (emphasis in original).

¶ 14 The DeWitt taxpayer lived in Arizona until he accepted a job with an American company doing construction work in the Republic of Vietnam. Id. at 33, 537 P.2d at 20. While there, the taxpayer rented a house and sent for his wife. Id. at 35, 537 P.2d at 22. Although his Vietnam home was not permanent, the supreme court affirmed the trial court's finding that Vietnam was the taxpayer's domicile because he intended to remain there for an indefinite period. Id.

¶ 15 Taxpayers here claim that they moved to Arizona only for a definite and temporary period. This claim is based upon Joel's testimony that he intended to return to Texas when his non-competition restriction expired. The tax court, however, found that Joel accepted employment at Artisoft for an indeterminate period and did not bind himself to a specific employment term. The tax court also found that AnnMarie moved to Arizona for an indeterminate period and intended to remain here as long as her husband chose to do so. The record contains substantial support for these findings.

¶ 16 Joel admitted on cross-examination that he started discussions with Artisoft before he resigned from Dell. Because the Artisoft job offer preceded the non-competition agreement, we do not accept the argument that the agreement compelled Joel to accept the Artisoft job. Moreover, the non-competition clause in Joel's termination agreement did not impose any geographical limitations. Joel could have stayed in Texas, yet he neither investigated other opportunities nor considered any position other than the one he took with Artisoft.

¶ 17 The record further reflects that Joel and Artisoft did not treat the position as temporary. Joel did not tell Artisoft that he would only work at Artisoft for two years, or that he intended to move back to Texas at the end of the two-year non-competition period. Further, in 1995, Artisoft promoted Joel to president and put him on its board of directors. Finally, the agreement with Artisoft did not bind Joel to any specific or limited term of employment.

¶ 18 The trial testimony explains why Taxpayers moved back to Texas in 1996. In 1995, Power Computing, a Texas-based computer company, launched a campaign to lure Joel away from Artisoft. By Spring 1996, Joel was ready to change jobs, but Dell would not waive the non-competition provision. Accordingly, Joel accepted the Power Computing position one day after the provision expired.

¶ 19 The mere fact that Taxpayers moved back to Texas after the non-competition provision expired does not demonstrate that it was always their intent to do so. The tax court believed...