Bentley v. Dept. of Rev. ( 2018 )

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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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
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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.
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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