Bentley v. Dept. of Rev.

• Court: Oregon Tax Court
• Decided: February 21, 2018
• Docket: TC-MD 170094R
• Status: Unpublished

Opinion

IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax

LARRY D. BENTLEY ) and MARILYN S. BENTLEY, ) ) Plaintiffs, ) TC-MD 170094R ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) FINAL DECISION1

Plaintiffs appealed Defendant’s Notice of Assessment dated January 20, 2017, for the

2011 tax year. A trial was held in the Oregon Tax Court on July 25, 2017. Larry D. Bentley

appeared on behalf of Plaintiffs. Larry D. Bentley (Larry)2 and Marilyn S. Bentley (Marilyn)

testified on their own behalf. Mindy McPherson appeared on behalf of Defendant but did not

testify. Plaintiffs’ Exhibits 1 to 79 were admitted into evidence without objection. Defendant’s

Exhibits A and B were admitted into evidence without objection.

I. STATEMENT OF FACTS

Plaintiffs moved to Oregon in 1995 and soon thereafter purchased a home in Beaverton.

Larry testified that in 1998, his job opportunities in Oregon diminished and became more

sporadic and interspersed with long periods of unemployment. (See Ptfs’ Ex 2 at 1.) By 2000,

with a lack of viable job opportunities in Oregon, Larry took a job in San Jose, California, where

he worked for approximately eight months. (Id. at 3.) In 2002, Plaintiffs purchased a Schooley

1 This Final Decision incorporates without change the court’s Decision, entered February 1, 2018. The court did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court Rule–Magistrate Division (TCR–MD) 16 C(1). 2 When referring to a party in a written decision, it is customary for the court to use the last name. However, in this case, the court’s Decision recites facts and references to two individuals with the same last name, Bentley. To avoid confusion, the court will use the first name of the individual being referenced.

FINAL DECISION TC-MD 170094R 1 Mitchell telecom franchise (later called “Abilita”) in Beaverton. (Ptfs’ Ex 1 at 2.) Over the

course of seven years, however, the franchise only yielded approximately $10,000 per year in

income. (Ptfs’ Ex 2 at 1.) In order to supplement the income from their franchise, Plaintiffs

established a $150,000 equity line of credit on their home and utilized almost $200,000 of their

retirement savings. (Id.) Plaintiffs, however, saw their ability to tap into their retirement savings

as only a temporary solution to their financial woes. (Id. at 1–2.)

In 2006, Plaintiffs began to search for lucrative business opportunities. (Id. at 2.) Larry

testified that at this time Plaintiffs were still approximately twelve years from either of them

being able to qualify for social security. (See Ptfs’ Ex 1 at 2.) In the spring of 2008, Plaintiffs

decided to try to recover their lost retirement savings by purchasing a business with a profitable

history. (Id.). After considering purchasing two other businesses in Washington, Plaintiffs

purchased the Seattle-based American Elevator Corporation (AEC) on April 1, 2009. (Ptfs’ Ex 3

at 2.) Plaintiffs purchased AEC for $1,053,000 and took an SBA loan of almost $900,000.

Plaintiffs moved to an apartment in Renton, Washington, one month later. (Ptfs’ Ex 37 at 2.)

Plaintiffs had some mail forwarded to a Post Office Box in Oregon because they owned Marla

Electric, an Oregon Business, and they were required to maintain an in-state mailing address.

(See Ptfs’ Ex 1 at 5.) During a turbulent time at AEC, Plaintiffs made Marla Electric the parent

company for AEC. Plaintiffs found that the move did not help their eventual legal troubles.

Larry testified that Marla Electric has no real business other than being a holding company.

Larry testified that after the 2008 recession, the value of his Beaverton Home dropped

below the mortgage balance, and thus Plaintiffs felt it would be unwise to sell it. He testified

that the house had significant deferred maintenance, and thus it would not be leased. Throughout

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FINAL DECISION TC-MD 170094R 2 their time in Washington, Plaintiffs often visited their Beaverton home on weekends to get away

from their business struggles and to maintain the property. (Ptfs’ Ex 1 at 7.)

Larry was the CEO/President of AEC and Marilyn was the Vice President; and both

performed a variety of other duties at AEC as well. (Ptfs’ Ex 1 at 3.) Immediately after taking

over AEC, Plaintiffs realized that there were significant problems with the company. In the first

week of their ownership, Plaintiffs had to inject $40,000 of cash into the business to meet payroll

obligations. (Ptfs’ Ex 1 at 6.) In the second week, AEC received a $250,000 invoice for elevator

purchases which had not been disclosed by the seller. (Id.) Plaintiffs soon discovered that the

company was plagued by a number of problems, including problems with the local business

community and unions, multiple lawsuits, and financial woes caused by lost contracts. (Ptfs’ Ex

3 at 4.) In August of 2009, Plaintiffs hired attorneys to investigate their purchase of AEC. (Ptfs’

Ex 1 at 6.) Plaintiffs commenced a lawsuit against the seller of the company, which resulted in

Plaintiffs recovering monies held back in escrow. (Id.) The law firm recommended a second,

more comprehensive, lawsuit be instituted; however, Plaintiffs lacked the resources to proceed

with other litigation. (Id.)

In 2010 and 2011, Plaintiffs renewed their Oregon driver’s licenses. (Def’s Ex B at 11–

12.) Larry testified that he was unaware that he was required to obtain a Washington license.

Larry also testified that Plaintiffs maintained their voter’s registration in Oregon, and in 2012 he

voted in Oregon. Larry testified that he only voted for President and was under the impression

that if he did not vote, he would be taken off the voters rolls. Plaintiffs testified that they did not

change their personal bank account while in Washington because their account was in a multi-

state bank, but they opened bank accounts in Washington for AEC. Prior to 2009, Plaintiffs

were members of the Royal Rosarians in Portland and participated in Rose Festival events. After

FINAL DECISION TC-MD 170094R 3 2009, Plaintiffs remained members of the group but limited their participation to events in

Washington. Plaintiffs attended the same church in Oregon for approximately 20 years, but their

attendance became sporadic when they relocated to Washington.

While in Washington, Plaintiffs joined the Master Builders association and the

Washington Multi-Family Housing Association. (Ptfs’ Ex 2 at 4.) Larry testified that Plaintiffs

did not join any other social organizations because they were so busy trying to solve problems

with AEC. Marilyn testified that Plaintiffs were involved with some Rosarian events in

Washington. Larry testified that two of his children came up to Washington to assist with AEC,

and a third child came up to help for a while.

In November of 2011, AEC filed a Chapter 11 bankruptcy, but the case was dismissed on

procedural grounds. (Ptfs’ Ex 1 at 8.) Plaintiffs then reassessed the company’s status and

concluded that, because AEC’s activity was improving, Plaintiffs would hold off on refiling for

bankruptcy. (Id.) Plaintiffs testified that they worked sixty hours per week at AEC and were

also available during their off hours.

Plaintiffs testified that by 2012 they were tired of renting and began looking for a house

in Washington to purchase. Plaintiffs engaged a realtor in the area and eventually found a house;

however, they were unable to secure a loan due to their financial condition related to their

purchase and ownership of AEC. (See Ptfs’ Ex 2 at 5.) By 2013, Plaintiffs’ Beaverton home had

increased in value. Plaintiffs discussed whether to sell the property but decided to retain it just in

case their efforts to turn around the troubles at AEC were unsuccessful. After 5 ½ years of losses

the company closed on October 31, 2014. Despite Plaintiffs’ hope and efforts to run AEC, both

the company and Plaintiffs filed for chapter 7 bankruptcy in 2015. At the time of that filing, the

FINAL DECISION TC-MD 170094R 4 company’s debt was approximately $1.4 million. (Ptfs’ Ex 1 at 8.) Plaintiffs testified that they

returned to Oregon, with the intent to remain, on December 1, 2014.

II. ANALYSIS

The issue before the court is whether Plaintiffs were domiciled in Oregon during the 2011

tax year.

A. Domicile

Oregon imposes a state income tax on every resident of this state and every nonresident

with Oregon-source income. ORS 316.037(1), (3).3 Oregon defines a resident as “[a]n

individual who is domiciled in this state unless the individual: (i) Maintains no permanent place

of abode in this state; (ii) Does maintain a permanent place of abode elsewhere; and (iii) Spends

in the aggregate not more than 30 days in the taxable year in this state[.]” ORS

316.027(1)(a)(A). Thus, residency is statutorily equated with domicile. Domicile is a common

law concept composed of two components: (1) “a fixed habitation or abode in a particular place”

and (2) “an intention to remain there permanently or indefinitely.” dela Rosa v. Dept. of Rev.

(dela Rosa), 313 Or 284, 289, 832 P2d 1228 (1992) (internal quotation marks omitted). Oregon

Administrative Rule (OAR) 150-316-0025(1)(a) defines domicile as “the place an individual

considers to be the individual’s true, fixed, permanent home” and as “the place a person intends

to return to after an absence.” Although an individual can have more than one residence, he or

she “can have but one domicile.” dela Rosa, 313 Or at 289 (quoting Reeds Will, 48 Or 500, 508,

87 P 763 (1906)).

Once a domicile is established or determined to be in a particular location, it will remain

there until a taxpayer can demonstrate three things: (1) the taxpayer has a residence in another

3 The court’s references to the Oregon Revised Statutes (ORS) are to 2009.

FINAL DECISION TC-MD 170094R 5 place; (2) the taxpayer intended to abandon the old domicile; and (3) the taxpayer intended to

acquire a new domicile. Elwert v. Elwert, 196 Or 256, 265, 248 P2d 847 (1952); cf. White v.

Dept. of Rev, 14 OTR 319, 321 (1998). A change in domicile is a question of fact that the

taxpayer has the burden of proving by a preponderance of the evidence. See ORS 305.427.

“Because the criteria governing domicile are unavoidably subjective, the court cannot simply

rely on the potentially self-serving testimony of the person or persons concerned; the question

must be answered by reference to the objective circumstances and the overt acts of the person or

persons at issue.” Seghetti v. Dept. of Rev., TC-MD 150407C, WL 3079040 (Or Tax M Div,

May 23, 2016) (quoting Hillenga v. Dept. of Rev., 21 OTR 396, 401 (2014)). “Factors that

contribute to determining domicile include family, business activities and social connections.”

OAR 150-316-0025 (1)(a).

1. Residence in Oregon and Washington

There is no dispute that Plaintiffs established a residence, and domicile, in Oregon prior

to 2009. Plaintiffs moved to a new residence in Washington in the spring of 2009, and

reestablished Oregon residency in December 2014.

2. Intent to abandon Oregon domicile/ Intent to acquire a Washington domicile

Plaintiffs argue that they intended to abandon Oregon as their domicile in 2009 and

acquire Washington as their new domicile. Defendant argues that Plaintiffs’ continued

ownership of their Beaverton property and their use of that address and an Oregon Post Office

Box for some mail; their failure to surrender and renewal of their Oregon driver’s licenses;

Larry’s voting in Oregon on one occasion in 2012; and their failure to establish a bank account in

Washington, tend to show that Plaintiffs did not intend to abandon Oregon as their domicile.

FINAL DECISION TC-MD 170094R 6 Defendant has certainly shown that Plaintiffs maintained lingering connections to Oregon

after they moved to Washington. However, this court has previously held that lingering

connections to one state do not prevent the court from concluding that a taxpayer effected a

change in domicile. In Hudspeth v. Department of Revenue, the taxpayers were absent from

Oregon for 16 months, “did not sell their home in Prineville, [Oregon,] * * * the husband

continued his Oregon Elks Lodge membership, * * * his Oregon voting registration remained on

the books, * * * he maintained a bank account in Prineville, * * * he paid dues at the golf club in

Prineville, * * * he purchased no home in * * * New Mexico, and made use of a mobile home in

* * * Colorado.” 4 OTR 296, 299 (1971). The taxpayer-husband in Hudspeth testified that he

had “tried to sell his Prineville home but found no takers,” that he “did not vote by absentee

ballot during his absence,” and that he “had no time to take care of or give consideration to

minor matters such as shifting bank accounts, cutting down on dues payments, and the like[.]”

Id. at 300. The court accepted his explanations and concluded that the taxpayers had effected a

change of domicile. Id. at 301.

Plaintiffs’ lingering connections to Oregon and their failure to permanently relocate to

Washington and establish Washington social connections are certainly problematic for their

case—especially if we look backwards in time from when they returned to Oregon in 2014.

However, intent is best viewed under the circumstances as Plaintiffs were experiencing them.

The court in Hudspeth stated, “Intent must be determined as to each step of the attempted change

in domicile as taken; hindsight is to be regarded with suspicion.” 4 OTR at 301. When viewed

from this perspective Plaintiffs’ intent looks different. Plaintiffs put significant investment into

their Washington-based business and continued to invest, even to their ultimate peril, until they

had exhausted themselves physically and financially. They began their Washington-based

FINAL DECISION TC-MD 170094R 7 business in 2009 and were swept up immediately in a torrent of crisis which demanded their full

attention. It is understandable that Plaintiffs did not establish significant social connections to

Washington under those conditions. Similarly, it is understandable that Plaintiffs did not attend

to relatively minor matters, like updating their voter registrations, driver’s licenses, or bank

account during that time. Plaintiffs also demonstrated significant efforts to purchase property in

Washington but were unable to do so, due largely to their business challenges. Ultimately, the

court is persuaded that Plaintiffs intended to make a permanent move to Washington in 2009 to

run their business. It is hard to imagine Plaintiffs spending so much time and money, and nearly

risking all of their assets, and not planning to stay. Plaintiffs’ retention of a home in Beaverton,

which at first was due to economic conditions, and later as a fall back provision should their

business fail, is not sufficient to find intent to keep their Oregon domicile. Therefore, the court

finds that Plaintiffs were not domiciled in Oregon during the 2011 tax year.

III. CONCLUSION

After careful review and consideration of the evidence presented, the court finds that

Plaintiffs were not Oregon residents in 2011. Now, therefore,

IT IS THE DECISION OF THIS COURT that Plaintiffs’ appeal is granted.

Dated this day of February, 2018.

RICHARD DAVIS MAGISTRATE

If you want to appeal this Final Decision, file a complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR. Your complaint must be submitted within 60 days after the date of the Final Decision or this Final Decision cannot be changed. TCR-MD 19 B. This document was signed by Magistrate Richard Davis and entered on February 21, 2018.

FINAL DECISION TC-MD 170094R 8