Lorenzo v. Vermont Department of Taxes, No. 213-3-14 Wncv (Teachout, J., February 4, 2015)

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                                                      STATE OF VERMONT

SUPERIOR COURT                                                                                         CIVIL DIVISION
Washington Unit                                                                                        Docket No. 213-3-14 Wncv

SOL LORENZO,
     Appellant

           v.

VERMONT DEPARTMENT OF TAXES,
    Appellee

                                                     DECISION ON APPEAL

        Taxpayer Sol Lorenzo filed a part-year resident Vermont income tax return for 2006, a
full-year resident Vermont return for 2007, and no Vermont return for 2008. The Department of
Taxes inquired, rejected his explanation that in 2008 he was domiciled in Florida, not Vermont,
and assessed a deficiency based on his 2008 federal return. The Department accepts that he was
not domiciled in Vermont in 2009 or thereafter.

       Mr. Lorenzo appealed to the Commissioner of Taxes pro se, claiming that his domicile in
2008 was in Florida and not in Vermont. Otherwise, the amount of the assessment is not at
issue. After a hearing, the Commissioner approved the hearing officer’s determination that Mr.
Lorenzo was domiciled in Vermont in 2008 and therefore liable for the Vermont income tax. On
appeal from the Commissioner’s Decision, Mr. Lorenzo now argues through counsel that the
Commissioner improperly assigned the burden of proof to him and that, in any event, the
evidence presented shows that he was domiciled in Florida, not Vermont, in 2008.

        The issue of burden of proof on the issue of domicile was apparently not the subject of
focus at the administrative hearing. The hearing officer addressed the matter as follows:
“Taxpayer bears the burden of proof in this case. ‘It is the taxpayer’s burden to show that the
[Department’s] assessment is erroneous, and that showing must be clear and convincing.’
Travia’s, Inc. v. State, Dept. of Taxes, 2013 VT 62, ¶ 12 (citations omitted).” The quoted portion
of Travia’s, however, describes the standard of judicial review applicable to the Commissioner
on an appeal after an evidentiary, administrative hearing establishing the assessment. It does not
describe the burden of proof at the administrative hearing.

        The disputed issue at the administrative hearing was Mr. Lorenzo’s domicile. Either the
Department or Mr. Lorenzo had the burden of proving domicile, the disputed factual issue. In
their briefs to this Court, the parties each argue that a different burden of proof applied at the
administrative hearing. This is the fundamental issue that must be addressed first.

        The burden of proof at the hearing is controlled by § 5 of the Department’s domicile
regulation, Regulation § 1.5811(11)(A)(i) (Domicile Regulation):
        (a) The party claiming domicile, or a change of domicile, shall carry the burden
        of proof.

        (b) The evidence required to establish both a change of residence and the
        intention to effect a change of domicile must be clear and convincing. The intent
        to change a domicile must be manifested by unequivocal acts.

        (c) A person’s course of conduct is accorded more weight than self-serving
        declarations of domicile.

        (d) An individual trying to establish Vermont as his or her domicile shall be
        subject to the same burden of proof as an individual claiming to have abandoned
        Vermont as his or her domicile.1

Under § 5, the ordinary preponderance standard applies to the mere proof of domicile. Proof of
intent to change domicile or of abandonment of domicile requires clear and convincing evidence.
Domicile Regulation § 5(b), (d). As the court explained in DeLuca v. Department of Taxes, the
higher standard applicable to a change in domicile “acts to enforce the ordinary expectation that
one’s most recent domicile remains one’s current domicile.” DeLuca v. Department of Taxes,
No. 765-12-05 Wncv, 2006 WL 4911333 (Vt. Super. Ct. Aug. 16, 2006) (Toor, J.), aff’d No.
2006-397, 2007 WL 5313339 (Vt. Apr. 2007) (unpub. mem.).

        The record shows that at times relevant to this case Mr. Lorenzo owned residential
properties in Florida, New York, Pennsylvania, and Vermont, and to some extent used residences
in different places at his convenience. In other words, proof of domicile was unlikely to be
straightforward.

        At the hearing, the Department did not take a position on where Mr. Lorenzo was
domiciled before Vermont, but essentially took the position that Mr. Lorenzo became domiciled
in Vermont sometime in either 2006 or 2007 and highlighted circumstances that support the
inference that his Vermont domicile continued through 2008, specifically that he did not change
his driver’s license from Vermont in 2008 and voted in the federal presidential election in 2008
in Vermont. Mr. Lorenzo took the position that he was never domiciled in Vermont and was
always domiciled in Florida (at least for many years prior to 2008), and highlighted the fact that
he and his wife moved to a newly acquired property in Florida early in 2008 where he lived
throughout the year.

       The record does not show that for any year prior to 2008 Mr. Lorenzo was taxed in
Vermont on the basis of domicile as opposed to residency. Neither party attempted to prove a
new domicile in 2008 in relation to a former domicile. Thus this case does not present a change-
of-domicile question, and the high ‘clear and convincing’ standard of proof does not apply. As
the DeLuca Court pointed out, such an analysis “would require comparison of a taxpayer’s

1
 At this point the Department’s counsel plainly is aware of the Domicile Regulation and its provisions on the
burden of proof. See the Department’s post-hearing memorandum (discussing the Domicile Regulation and the
burden of proof). However, the hearing officer neither cited nor discussed the Domicile Regulation or its provisions
on the burden of proof.

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contacts in the former domicile (which would presumably be substantial) with contacts in the
new domicile.” DeLuca, 2007 WL 5313339, *2. It is the comparison between those competing
locations that would frame the evidence and allow the finder of fact to sensibly apply the higher
burden of proof, as appropriate, in Domicile Regulation § 5(b).

        In this case, the Department claims that Mr. Lorenzo’s 2008 domicile was Vermont, but
the record does not show that domicile had been established for 2007. Therefore, under
Domicile Regulation § 5(a), the Department had the burden of proof (by a preponderance of the
evidence) on that issue. The hearing officer erred by placing the burden on Mr. Lorenzo to
disprove by clear and convincing evidence the Department’s assertion of domicile.

        The court is unable to conclude that this error on the part of the hearing officer is
harmless. The evidence in this case included a large number of facts and circumstances, such as
those described above, some of which favored domicile and some of which did not. As a further
example, Mr. Lorenzo testified that he lived in Florida for the entirety of 2008, that he travels a
lot, and that while he received mail at the Vermont address this was so that his son, who comes
to the Vermont house each weekend, could fax or otherwise forward it to him. The hearing
officer neither discredited this testimony nor accounted for it in the analysis of domicile.

       In a case such as this, in which there is a significant body of conflicting evidence and the
hearing officer was required to consider that evidence in relation to a number of statutory factors
applicable to a determination of domicile, the placement of the correct burden of proof on the
proper party can have a significant effect on the analysis and thus the outcome. Considering the
record as a whole, the court concludes that the use of the incorrect burden of proof likely had a
material—and likely dispositive—influence on the outcome. Imposing it incorrectly on Mr.
Lorenzo was not harmless.

                                             ORDER

       For the foregoing reasons: the Commissioner’s determination is vacated and this case is
remanded for a new hearing at which the Department bears the burden of proof to show domicile
in 2008 by a preponderance of the evidence.

       Dated at Montpelier, Vermont this ____ day of February, 2015.


                                                     _____________________________
                                                     Mary Miles Teachout
                                                     Superior Judge




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