Tuesday, April 2, 2013

Forbes: Idaho Couple Beat Tax Commission on Domicile But Lost on Community Property

Posted By on Tue, Apr 2, 2013 at 12:00 PM

Forbes Magazine's Peter Reilly, who covers tax issues for the business journal, reports this morning of a twisted tale involving domicile, community property and the Idaho Tax Commission. The commission redacted the names of an Idaho couple so Reilly refers to them as "George and Martha."

The story began with Washington state residents George and Martha buying a house in Idaho, prior to a move. But George's employer, not willing to let him go, gave him a big promotion and raise. George decided to stay in Washington while Martha and their children moved into their new Idaho home.

George didn't want to pay Idaho's top income tax rate of 7 percent, versus Washington's 0 percent, claiming that he was still domiciled in Washington. The Idaho Tax Commission ultimately agreed.

But both Idaho and Washington are community property states and treat earnings as community income. Simply put, they took more from Martha.

Reilly suggests that George and Martha would have been better off if they owned two homes in Idaho and Wyoming (Wyoming doesn't have an individual income tax nor a community property rule).

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