Where’s Home for the Franchise King?

The BR State + Local Tax Spotlight

Determining the location of a person’s domicile is a fact-intensive inquiry—with potentially large tax consequences. For example, take the recent Kansas Supreme Court decision in Bicknell v. Kansas Department of Revenue, No. 120,935 (Kan. May 20, 2022). In that case, Mr. Bicknell asserted that he was a Florida resident for 2005 and 2006, but the Kansas Department of Revenue (the “Department”) alleged that he never abandoned his Kansas domicile. On the line was an assessment of over $42 million, including interest and penalties.

Mr. Bicknell owned more than 800 Pizza Hut franchises—the largest Pizza Hut franchisee in the world at the time. For most of his life, Mr. Bicknell was a resident of Kansas and purchased a home in Florida in the early 1990s. In 2003, Mr. Bicknell decided to retire and move to Florida for a variety of personal reasons. His wife, however, chose to remain a resident of Kansas. In 2006, Mr. Bicknell sold his business for a substantial gain and filed a nonresident return in Kansas, which did not reflect the gain as taxable in the State.

After an audit, the Department issued an assessment asserting that Mr. Bicknell should have filed as a resident in Kansas for 2005 and 2006 and included the gain in taxable income. Kansas law “requires the concurrence of two factors to establish a change of domicile: (1) physical presence in a location; and (2) an intent to remain in that location, either permanently or indefinitely.” Id. at 40. The court examined the evidence established during the eight-day hearing, which included the number of days spent in Kansas, the State that provided Mr. Bicknell with a driver’s license, where he was registered to vote, and where he owned real property.

While the court agreed with the Department that the burden was on Mr. Bicknell to establish that he changed his domicile, the court found that Mr. Bicknell met that burden. The court held that there was substantial evidence in the record to support a finding that Mr. Bicknell moved from Kansas to Florida and intended to do so on a permanent basis.

The court’s opinion sends a very clear message—the tax effect does not determine a taxpayer’s domicile—no matter how large. Instead, it is the facts that matter. With many taxpayers seeking to move to lower tax jurisdictions, the key to success is following through with the move and not just on paper. Taxpayers need to change their driver’s license, update their voter registration, move their belongings, and track the number of days spent in each location, among other things. With proper documentation, even the trickiest domicile case can be won.

This article is one in a series of articles written for the June 2022 edition of The BR State + Local Tax Spotlight.

© 2022 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.