                IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Christopher M. Lust and                       :
Nicole M. Schmidt Lust,                       :
                             Petitioners      :
                                              :
              v.                              :
                                              :
Commonwealth of Pennsylvania,                 :    No. 645 F.R. 2011
                     Respondent               :    Submitted: October 7, 2015



BEFORE:       HONORABLE DAN PELLEGRINI, President Judge
              HONORABLE BERNARD L. McGINLEY, Judge
              HONORABLE ROBERT SIMPSON, Judge
              HONORABLE MARY HANNAH LEAVITT, Judge
              HONORABLE P. KEVIN BROBSON, Judge
              HONORABLE PATRICIA A. McCULLOUGH, Judge
              HONORABLE ANNE E. COVEY, Judge


OPINION NOT REPORTED

MEMORANDUM OPINION BY
JUDGE COVEY                                        FILED: December 17, 2015

              Christopher M. Lust (Lust) and Nicole M. Schmidt Lust (Mrs. Lust)
(collectively, Taxpayers), pursuant to Pennsylvania Rule of Appellate Procedure
1571(i), filed exceptions to this Court’s January 9, 2015 panel opinion and order
affirming the Board of Finance and Revenue’s (BFR) August 23, 2011 order. In this
Court’s initial decision, the Court concluded that Taxpayers failed to prove that they
were not Pennsylvania residents under the Tax Reform Code of 1971 (Code)1 during
the 2005 tax year. After review, this Court, en banc, overrules the exceptions.2


       1
          Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-10004.
       2
          By per curiam order dated June 17, 2014, this Court granted Taxpayers’ unopposed motion
to seal the record and exhibits. This opinion does not disclose confidential information contained
therein, such as social security numbers, addresses and income.
              The underlying facts are disputed and set forth in the initial panel
opinion. We summarize them here.
              On July 24, 2006, Taxpayers filed an initial personal income tax (PIT)
return for 2005 (2005 Return) with the Pennsylvania Department of Revenue
(Revenue) identifying Avalon, New Jersey as their current place of residence, and
designating themselves part-year Pennsylvania residents for the period January 1,
2005 through October 5, 2005. In the 2005 Return, Taxpayers reported a gross tax
due of $155,076.00 with credits totaling $183,272.00,3 resulting in an overpayment of
$28,196.00. By September 1, 2006 letter, Revenue notified Taxpayers that it required
additional information.        On September 27, 2006, Taxpayers’ certified public
accountant responded to Revenue’s letter with various documentation and the
following explanation: “In the Spring of 2005, [Taxpayers] wed. . . . Prior to the
marriage[,] Mrs. Lust resided[] (domiciled)[] in New York and Mr. Lust resided[]
(domiciled)[] in Pennsylvania. . . . [Taxpayers] moved their respective residences[]
(domicile)[] to New Jersey at the beginning of October, 2005.” Original Record
(O.R.) at 146. On October 31, 2006, after assessing an estimated tax penalty of
$1,464.36 and applying $1,355.22 to an outstanding liability from 2004, Revenue
issued Taxpayers a $25,377.42 refund.
              On October 14, 2009, almost three years later, Taxpayers filed an
amended 2005 Pennsylvania tax return stating that they were not Pennsylvania
residents for any part of 2005, reporting $0.00 of taxable income for the 2005 tax
year and requesting a $93,283.00 PIT refund, claiming:


       3
         Taxpayers attached a copy of their 2005 New York State Nonresident and Part-Year
Resident Tax Return (New York Return) in support of a credit representing $63,272.00 in taxes they
paid in New York. The New York Return identifies Taxpayers as nonresidents. At some point after
Taxpayers filed their New York Return, the New York State Department of Taxation and Finance
conducted a field audit and concluded that Taxpayers were domiciled in New York State/City from
January 1, 2005 to July 31, 2005.
                                                2
                Taxpayers are amending their tax return to exclude wages
                and investment income from gross income that were earned
                while the taxpayers were tax residents of New York and
                New Jersey, and not Pennsylvania. The taxpayers were
                part[-]year residents of New York and New Jersey for the
                full tax year, and nonresidents of Pennsylvania. Therefore
                they are filing a refund claim for overpaid Pennsylvania
                income taxes.

O.R. at 79.       Revenue determined that Taxpayers were not entitled to a refund.
Taxpayers filed a Petition for Review with the BFR. By August 23, 2011 order, the
BFR denied Taxpayers’ Petition for Review. Taxpayers appealed to this Court, and a
panel of this Court (Panel) affirmed the BFR’s decision on appeal. Taxpayers’
exceptions followed.4
                Taxpayers argue that the Panel erred in its decision because it
“artificially clung to [] Lust’s signature on the initial [Pennsylvania] tax returns and
letter from [] Lust’s accountant . . . and held that although [Taxpayers] were not
meaningfully present in Pennsylvania and properly amended the initial tax return
[Taxpayers] were nonetheless irreversibly committed to the statement of residency in
the initial return.” Taxpayers’ Br. at 4 (emphasis added).5 Further, Taxpayers assert

       4
           This Court has explained:

                [I]n tax appeals from the [BFR], this [C]ourt functions as a trial court.
                As fact finder, this [C]ourt may resolve factual disputes, but where
                there are no factual disputes, this [C]ourt shall adopt the parties’
                stipulation of facts. Our scope of review in a tax appeal is limited to
                the construction, interpretation and application of a tax statute in
                relation to a given set of facts. Exceptions to a determination by this
                [C]ourt filed pursuant to [Pennsylvania Rule of Appellate Procedure]
                1571(i) have the effect of an order granting reconsideration.
TCI Ne., Inc. v. Commonwealth, 676 A.2d 1271, 1274 (Pa. Cmwlth. 1996) (citations omitted).
        5
          Importantly, the Panel did not, as Taxpayers contend, “h[o]ld that . . . [Taxpayers] were
not meaningfully present in Pennsylvania . . . .” Taxpayers’ Br. at 4. Instead, the Panel held that in
light of the documents Taxpayers had previously filed, and in the absence of substantial credible
evidence demonstrating New York residency, Taxpayers did not meet their burden. It is Taxpayers
who have asserted that they were not meaningfully present in Pennsylvania. Further, contrary to
Taxpayers’ statement, the Panel did not hold that the initial return was “properly amended . . . .” Id.
                                                   3
that the Panel improperly rejected Taxpayers’ evidence and disregarded the
established test for determining residency.
               The Code requires that every “resident individual” pay PIT on all
income received during the taxable year, and every “nonresident individual” pay PIT
on income received from sources within the Commonwealth during the taxable year.
72 P.S. § 7302.6 Section 301(p) of the Code defines a “[r]esident individual” as

               an individual who is domiciled in this Commonwealth
               unless he maintains no permanent place of abode in this
               Commonwealth and does maintain a permanent place of
               abode elsewhere and spends in the aggregate not more than
               thirty days of the taxable year in this Commonwealth; or
               who is not domiciled in this Commonwealth but maintains a
               permanent place of abode in this Commonwealth and
               spends in the aggregate more than one hundred eighty-three
               days of the taxable year in this Commonwealth.

72 P.S. § 7301(p) (emphasis omitted).7 A “[n]onresident individual” is defined as
“any individual who is not a resident of the Commonwealth.” 72 P.S. § 7301(m)
(emphasis omitted).
               Section 101.3 of Revenue’s Regulations states, in pertinent part:

               (a) In the case of an individual domiciled in this
               Commonwealth, the maintenance of a permanent place of
               abode in this Commonwealth is alone sufficient to make
               him a resident for tax purposes. Even though he remains
               outside this Commonwealth for the entire year, the 183-day
               rule applies only to taxpayers who are not domiciled in this
               Commonwealth.        Reference should also be made to
               [Section] 101.5 [of Revenue’s Regulations] (relating to
               rules for days within and without the Commonwealth).
               (b) A domicile, once established, continues until the
               individual in question moves to a new location with the
               bona fide intention of making his fixed and permanent
               home there. No change of domicile results from a removal

      6
          Section 302 of the Code was added by Section 8 of the Act of August 4, 1991, P.L. 97.
      7
          Added by Section 4 of the Act of August 31, 1971, P.L. 362.
                                                 4
            to a new location if the intention is to remain there only for
            a limited time; this rule applies even though the individual
            may have sold or disposed of his former home. The burden
            shall be upon the individual asserting a change of domicile
            to show that the necessary intention existed. In determining
            an individual’s intention in this regard, his declarations
            shall be given due weight, but they may not be conclusive if
            they are contradicted by his conduct. The fact that an
            individual registers and votes in one place is important but
            not necessarily conclusive, especially if the facts indicate
            that he did this merely to escape taxation in some other
            place.
            ....
            (d) An individual may have only one domicile. If he has
            two or more homes, his domicile shall be the one which he
            regards and uses as his permanent home. In determining his
            intentions in this matter, the length of time customarily
            spent at each location shall be important but not necessarily
            conclusive. An individual who maintains a permanent
            place of abode in this Commonwealth is taxable as a
            resident even though he may be domiciled elsewhere.

61 Pa. Code § 101.3.
            Citing case law and Revenue’s Regulations, Taxpayers unabashedly
argue in their brief that this Court should not trust Taxpayers’ own claims of
Pennsylvania residency to determine their residency for the purpose of determining
their PIT liability, “when all evidence of [T]axpayer[s’] actual activities and
whereabouts contradicts those statements.” Taxpayers’ Br. at 3. In other words,
Taxpayers contend the Panel erred because it relied on Taxpayers’ own proclamation
of Pennsylvania residency made when Taxpayers filed their original tax returns,
rather than Taxpayers’ directly contradictory representations made in their amended
tax return and subsequent litigation. Despite the significant record evidence which
includes Pennsylvania and New York tax returns and other Taxpayer documents
reflecting Pennsylvania residency, Taxpayers assert that “[Taxpayers’] acts
demonstrated domicile in New York for tax year 2005. [According to Taxpayers,]

                                          5
[i]t is this actual evidence of Taxpayer[s’] activities and whereabouts that controls,
and requires a finding that Taxpayer[s are] not subject to Pennsylvania PIT.”
Taxpayers’ Br. at 3 (bold emphasis added).
             Taxpayers fault the Panel for “subjecting nonresident [Taxpayers] to
PIT[,]” “fashion[ing] their own standard to achieve a desired result” and failing to
“cite to or rely on any evidence showing that [Taxpayers] were present in
Pennsylvania in any meaningful way in 2005.” Taxpayers’ Br. at 4. However, we
find no error in the Panel’s analysis, since “a party appealing from a denial of a tax
refund by the [BFR] has the burden of proof in a de novo proceeding before this
Court.” Armco, Inc. v. Commonwealth, 654 A.2d 1191, 1193 (Pa. Cmwlth. 1993)
(italics and bold emphasis added).         Moreover, Section 101.4 of Revenue’s
Regulations provides, in relevant part:

             (a) An individual domiciled in this Commonwealth shall be
             a resident for purposes of this article for a specific taxable
             year, unless for that year he satisfies all three of the
             following requirements:
               (1) Maintains no permanent place of abode in this
               Commonwealth during the year.
               (2) Maintains a permanent place of abode elsewhere
               during the entire year.
               (3) Spends in the aggregate not more than 30 days of
               the taxable year in this Commonwealth.
             ....
             (c) Where an individual claims to be a nonresident for
             any taxable year, the burden shall be upon him to show
             that during that year he satisfied all three of the
             requirements set forth in subsection (a).

61 Pa. Code § 101.4 (emphasis added). Thus, contrary to Taxpayers’ protestations,
the Panel was not required to cite to or rely on evidence to conclude that Taxpayers


                                           6
were Pennsylvania residents. Instead, having appealed from the BFR’s denial of
their refund request, it was Taxpayers’ burden to demonstrate that they were not
Pennsylvania residents during 2005.
              We consider Taxpayers’ acts:

              1) Lust signed and filed a 2004 Pennsylvania PIT return
                 dated August 15, 2005 listing Lust’s home address as
                 Pittsburgh, Pennsylvania;8
              2) Lust signed and filed a 2004 New York State
                 Nonresident and Part-Year Resident Return dated
                 August 15, 2005 listing Lust’s home address as
                 Pittsburgh, Pennsylvania;
              3) Taxpayers signed and filed the 2005 Return dated July
                 24, 2006, which listed Taxpayers’ home address as
                 Avalon, New Jersey, and claimed partial-year
                 Pennsylvania residency from January 1, 2005
                 through October 5, 2005;
              4) Taxpayers attached to their 2005 Return, a 2005 New
                 York State Nonresident and Part-Year Resident
                 Return dated July 17, 2006, listing Avalon, New Jersey
                 as their home address;
              5) For Lust’s August 2, 2005 purchase of property in
                 Avalon, New Jersey, Lust executed a deed listing
                 Pittsburgh, Pennsylvania as his home address;
              6) In response to Revenue’s September 1, 2006 letter,
                 Taxpayers caused and/or permitted Taxpayers’
                 certified public accountant to send the September 27,
                 2006 letter to Revenue on their behalf, “relative to the
                 [T]axpayers’ part year Pennsylvania resident
                 individual tax return[.]” O.R. at 146. The September
                 27, 2006 letter unambiguously informed Revenue that
                 Lust was domiciled in Pennsylvania until the beginning
                 of October in 2005. Although Lust was carbon-copied

       8
         At Lust’s February 14, 2014 deposition, Taxpayers objected to the relevance of this
document; however, Lust’s 2004 PIT return is clearly relevant as it reflects Lust’s home address in
2005. Further, the filing of the 2004 PIT return in which Lust claimed a resident credit, directly
contradicts Lust’s later testimony that he was a New York State resident as early as 2000.
                                                7
                  on the letter, there is no record evidence that upon
                  receiving a copy of the letter he notified his
                  accountant that the information contained therein
                  was incorrect and/or directed his accountant to notify
                  Revenue accordingly;9
              7) In response to Revenue’s September 1, 2006 letter
                 requesting additional information, Lust caused his New
                 York-based employer to send a September 26, 2006
                 letter to Revenue verifying Lust’s New York wages for
                 the period January 1, 2005 to October 5, 2005.
              8) Lust held a Pennsylvania driver’s license in 2005;10
                 and,
              9) Almost three years after filing their initial return and
                 representing to Revenue that they were Pennsylvania
                 residents during 2005, Taxpayers caused to be filed an
                 amended 2005 PIT return, directly contradicting those
                 representations.

              Despite these acts, Taxpayers urge this Court to consider Taxpayers’
activities and whereabouts in New York during 2005. Taxpayers’ Br. at 3. This
evidence of Taxpayers’ alleged New York activities is not, as Taxpayers contend,
overwhelming evidence of Taxpayers’ New York residency. Id. Rather, Taxpayers’
evidence consists of Lust’s deposition testimony, a calendar Lust prepared, a deed to
Lust’s New York apartment (N.Y. Deed) executed in 2004 and listing a New York
address for Lust, and an undated document titled “Explanation of Adjustments,”


       9
           At Lust’s deposition, Taxpayers voiced a hearsay objection to the admission of the
September 27, 2006 letter. This Court has explained, “the admission of a party is an exception to
the hearsay rule and is competent to sustain a finding of fact. Statements made by an agent,
employee or other representative of a party are admissible as evidence if the representative had
express or implied authority to make them.” Borough of Grove City v. Unemployment Comp. Bd. of
Review, 928 A.2d 371, 374 (Pa. Cmwlth. 2007) (citation omitted). The letter, prepared by
Taxpayers’ certified public accountant, the same individual who prepared Taxpayers’ PIT return,
certainly had implied authority to make such representations.
        10
           Section 250(2) of the New York State Vehicle and Traffic Law (in effect in 2005), N.Y.
Veh. & Traf. Law § 250(2), provides that a nonresident driver who becomes a New York resident
must obtain a New York State driver’s license within 30 days of becoming a resident.
                                               8
which appears to be from the New York State Department of Taxation and Finance
(N.Y. Department) stating that, “[a]s a result of a field audit, we have determined that
you were domiciled in New York State/City during Jan[uary] 1, 2005 – July 31,
2005.” O.R. at 81. 11
               Taxpayers claim that the Panel subjected them, as nonresidents, to PIT
and further criticize the Panel as ignoring the reality of their actual domicile during
the relevant periods, arguing that “Taxpayer cannot be simultaneously domiciled in
two states, and Taxpayer’s activity in 2005 did not even remotely give rise to a
domicile in Pennsylvania.” Taxpayers’ Br. at 2 (emphasis added). Importantly, the
Panel did not find that Taxpayers were nonresidents. In fact, it was Taxpayers who,
during the relevant period, painted a very clear picture depicting their
Pennsylvania residency when they filed Pennsylvania tax returns claiming
Pennsylvania residency, nonresident New York state tax returns, completed other
documents using a Pennsylvania home address and permitted their accountant to
expressly represent Lust’s Pennsylvania residency to Revenue. If Taxpayers’ alleged
2005 New York domicile was as clear as Taxpayers assert – that they lived and
worked in New York and Lust “earned no income in Pennsylvania, performed no
work in Pennsylvania, had no clients in Pennsylvania and did not visit Pennsylvania
for any business purpose” and Taxpayers’ conduct “did not even remotely give rise to
domicile in Pennsylvania” - there would simply have been no reason for anyone,
particularly Taxpayers or their accountant, to believe that Taxpayers should and in
fact did file Pennsylvania tax returns and claim New York State nonresidency.
Taxpayers’ Br. at 2.


       11
            Taxpayers contend that the Panel ignored their “acts” which allegedly “demonstrated
domicile in New York for tax year 2005.” Taxpayers’ Br. at 3. The Panel’s opinion clearly reflects
that it did not ignore the evidence, but instead, doubted the credibility of Taxpayers’ witness and the
reliability of Taxpayers’ evidence.
                                                  9
               Taxpayers further contend that “[t]he Panel acknowledged that
[Taxpayers’] evidence was competent and supporting [Taxpayers’] status as New
York residents. The Panel still veered entirely off the legal standard by rejecting the
only evidence of [Taxpayers’] whereabouts and activities during 2005.”
Taxpayers’ Br. at 4-5 (citation omitted; emphasis added). Taxpayers’ claim that the
Panel acknowledged that Taxpayers’ evidence “was competent and supporting
[Taxpayers’] status as New York residents” is not supported by the Panel decision.
Taxpayers’ Br. at 5.         In fact, the Panel found that “Taxpayers’ amended 2005
personal income tax return, filed approximately 3 years later, Lust’s self-serving tax
calendar and selectively-evasive deposition testimony given approximately 9 years
after the tax year at issue [were] of dubious value. As fact finder, [it did] not find
Lust’s testimony credible.”12, 13 Panel Op. at 8 (emphasis added). The Panel further
determined that the calendar, which Lust purportedly created after a review of various
credit card statements and other receipts, was unreliable.14

       12
            On direct examination, Lust testified in meticulous detail as to numerous facts supporting
his 2005 New York residency arguments. However, on cross-examination, Lust was repeatedly
unable to remember critical and potentially damaging facts, declined to identify several documents
that he purportedly signed and filed, and refused to confirm information contained therein. In light
of his testimony claiming New York residency during 2005 (contradicting the representations made
in his 2005 Return), Lust explained only that his filing of the 2005 Return resulted from poor tax
advice.
         13
            “The finder of fact is sole judge of credibility and is free to believe all, part, or none
of the evidence.” In re Funds in Possession of Conemaugh Twp. Supervisors, 753 A.2d 788, 790
(Pa. 2000) (emphasis added). See also Commonwealth v. Roux, 350 A.2d 867, 870 n.3 (Pa. 1976)
(“[I]t is well-settled that the finder of fact may believe all or a part of or none of the testimony
of any witness”) (emphasis added). See also, Albright v. State Emps. Ret. Sys., 500 A.2d 522, 523
(Pa. Cmwlth. 1985) (“Resolutions of credibility are within the province of the . . . fact finder and
such resolution does not constitute capricious disregard of competent evidence.”)
         14
            The record does not include Lust’s credit card statements and receipts which Lust
allegedly used to create the calendar. Taxpayers claim that “[t]he Commonwealth has never . . .
requested to examine the underlying documents[.]” Taxpayers’ Br. at 5. It is Taxpayers’ burden to
demonstrate that they were not Pennsylvania residents in 2005. If Taxpayers believed that the
credit card statements and receipts would help to corroborate Lust’s testimony and demonstrate the
calendar’s accuracy, it was Taxpayers’ responsibility to offer those documents into evidence.
                                                 10
              Taxpayers had the burden to prove by credible evidence that they were
not Pennsylvania residents. Armco, Inc. Lust, Taxpayers’ only witness, was deemed
not credible, and the calendar he created was not supported by any documentary
evidence.     Taxpayers’ other evidence was also not convincing.15                     Taxpayers
disingenuously argue that “[t]he Panel cannot reject the established legal test, and
craft their [sic] own, to achieve a desired result of penalizing a Taxpayer whom they
[sic] may perceive to be forum shopping.” Taxpayers’ Br. at 5 (emphasis added).
Relying on a Revenue brochure, Taxpayers argue that “[a]lthough [Revenue] has set
forth twenty-nine factors to assist in determining residency, it appears the Panel chose
to invent and consider new factors.” Taxpayers’ Br. at 5. The Panel did not reject
“the established legal test,” nor did it “invent and consider new factors.” Id. Instead
it concluded, as do we, that Taxpayers failed to produce credible substantial evidence
to support their position16 and thus, Taxpayers did not meet their burden.17

       15
           The N.Y. Deed executed in 2004 reflecting Lust’s ownership of New York property, does
not demonstrate New York residency for the 2005 tax year. In addition, the “Explanation of
Adjustments” from the N.Y. Department does not identify the documents or other information upon
which the N.Y. Department relied, or the manner in which it reached its conclusion in performing
the field audit, and thus, is not credible evidence.
        16
            Taxpayers also claim that the Panel “erred in giving any weight to the length of this
dispute.” Taxpayers’ Br. at 5. The Panel considered numerous factors in determining the accuracy
and reliability of the evidence presented, including the fact that the documentary evidence
supporting Taxpayers’ Pennsylvania residency was created closer in time to the 2005 tax year than
Lust’s testimony which was given approximately nine years after the tax year at issue. “It is
axiomatic that statements made ‘closer in time’ to the incident in question are inherently more
reliable.” Divilly v. Port Auth. of Allegheny Cnty., 810 A.2d 755, 758 (Pa. Cmwlth. 2002). Further,
although Taxpayers claim that Taxpayers’ calendar was based on “airline bookings, calendar entries
and receipts[] issued contemporaneously with these activities in 2005[,]” the documents on which
the calendar was allegedly based are not in the record. Taxpayers’ Br. at 5.
        17
           In their Amended Reply Brief, Taxpayers also assert that:

              The Commonwealth does not even attempt to argue that Mrs. Lust,
              who is equally impacted by the Court’s ruling, had any meaningful
              conduct or presence in Pennsylvania. No such evidence exists. The
              Commonwealth offers no explanation why Mrs. Lust’s residence and
              activities should be ignored.     All evidence of [Mrs. Lust’s]
                                                11
              For all of the above reasons, Taxpayers’ exceptions are overruled.


                                            ___________________________
                                            ANNE E. COVEY, Judge




              whereabouts and activities in the period at issue points to New York
              residency.
Taxpayers’ Amended Reply Br. at 2. As previously discussed, Taxpayers had the burden to
demonstrate that they were not Pennsylvania residents at the time in question. The Panel found that
Lust’s testimony lacked credibility and Taxpayers’ other evidence was less than convincing.
Notably, Mrs. Lust did not testify, and accordingly, this Court did not have the opportunity to
consider her testimony.
                                                12
          IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Christopher M. Lust and                   :
Nicole M. Schmidt Lust,                   :
                          Petitioners     :
                                          :
            v.                            :
                                          :
Commonwealth of Pennsylvania,             :   No. 645 F.R. 2011
                     Respondent           :


                                        ORDER

            AND NOW, this 17th day of December, 2015, Christopher M. Lust and
Nicole M. Schmidt Lust’s exceptions to this Court’s opinion and order in Lust v.
Commonwealth (Pa. Cmwlth. No. 645 F.R. 2011, filed January 9, 2015) are
overruled. Judgment is entered in favor of the Commonwealth.


                                        ___________________________
                                        ANNE E. COVEY, Judge
