Fowler v. Dep't of Revenue

Fowler v. N.C. Dep’t of Revenue, 2014 NCBC 36.

STATE OF NORTH CAROLINA GENERAL COURT OF JUSTICE
WAKE COUNTY SUPERIOR COURT DIVISION
13 CVS 10989

STEVE W. FOWLER and
ELIZABETH P. FOWLER,

Petitioners,

v. ORDER ON PETITION FOR REVIEW
OF FINAL DECISION
NORTH CAROLINA DEPARTMENT
OF REVENUE,

Respondent.

{1} THIS MATTER is before the court on the Petition for Judicial Review
of a Final Agency Decision in this contested tax case arising under N.C. Gen. Stat.
§ 105-241.16 (2013).
Robinson, Bradshaw & Hinson, P.A. by John R. Wester and Thomas
Holderness for Petitioners Steve W. Fowler and Elizabeth P. Fowler.

North Carolina Department of Justice by Andrew O. Furuseth and Perry
J. Pelaez for Respondent North Carolina Department of Revenue.

Gale, Judge.

I. INTRODUCTION

{2} This matter involves the dispute between Petitioners Steve W. Fowler
and Elizabeth P. Fowler (collectively “the Fowlers” or “Petitioners”) and Respondent
North Carolina Department of Revenue (“Department” or “Respondent”). The
question before the court is whether Petitioners changed their domicile from North
Carolina to Florida on or about January 20, 2006, exempting them from taxes
arising from income received and gifts made in connection with the sale of Mr.
Fowler’s majority interest in his company, which closed on February 3, 2006.
{3} Respondent acknowledges that Petitioners ultimately intended to
change their domicile to Florida at some point in the future, but that they had no
intent to and did not abandon their domicile in North Carolina at a time that avoids
the taxes in question. Petitioners acknowledge substantial continuing activities in
North Carolina after their change of domicile to Florida, but maintain they
remained in the state for temporary and transitory activities necessitated by the
terms of the sales transaction.
{4} The various factual events developed in the Official Record are largely
undisputed. The dispute hinges on the legal significance of those facts and their
adequacy to support the claimed change of domicile. The Administrative Law
Judge (“ALJ”), Beecher R. Gray, heard several days of evidence and issued a
decision in Petitioners’ favor (“ALJ Decision”). Respondent rejected the ALJ
Decision and issued its Final Agency Decision upholding the imposition of taxes
against Petitioners as North Carolina residents. The court must now make its own
factual and legal determinations based on the Official Record.

II. PROCEDURAL HISTORY

{5} Following audits for the 2006 and 2007 tax periods, Respondent, on
October 27, 2011, issued Notices of Final Determination (“Final Determination”)
that Petitioners owed the taxes subject to this action.
{6} On December 21, 2011, Petitioners filed a Petition for Contested Case
Hearing in the Office of Administrative Hearings, pursuant to N.C. Gen. Stat.
§ 150B-23(a), challenging the Final Determination.
{7} On December 22, 2011, the Office of Administrative Hearings accepted
Petitioners’ petition for a contested case hearing and assigned Judge Gray to
preside. (Pet. Contested Case Hr’g, Fowler v. N.C. Dep’t of Revenue, No. 11 REV
14832 (N.C. Office Admin. Hearings Dec. 22, 2011).)
{8} Judge Gray heard evidence for six days beginning on November 13,
2012, and issued the ALJ Decision in Petitioners’ favor on December 31, 2012.
Fowler v. N.C. Dep’t of Revenue, No. 11 REV 14832 (N.C. Office Admin. Hearings
Dec. 31, 2012).
{9} Following its receipt of the complete official record on March 19, 2013,
the Department filed its Exceptions to the ALJ Decision on May 7, 2013, and its
Final Agency Decision on July 17, 2013, rejecting the ALJ Decision and sustaining
the tax, penalties, and interest. Fowler v. N.C. Dep’t of Revenue, No. 11 REV 14832
(N.C. Dep’t of Revenue July 17, 2013) (“Final Agency Decision”).
{10} On August 14, 2013, Petitioners filed their Petition for Judicial Review
of the Final Agency Decision pursuant to N.C. Gen. Stat. § 150B-45 (2013).
{11} The matter was assigned to the undersigned on August 23, 2013. The
complete Official Record has been filed, the respective positions have been fully
briefed, the court has heard oral argument, and the matter is ripe for disposition.

III. STANDARD OF REVIEW

{12} The standard of review for this matter is established by N.C. Gen.
Stat. § 150B-51(c) as it was in effect when the administrative proceeding was
initiated on December 21, 2011.1 N.C. Gen. Stat. § 150B-51(c) (2011) (repealed
2011, eff. Jan. 1, 2012). That statute provides that where an agency rejects an
ALJ’s decision, “the court shall review the official record, de novo, and shall make
findings of fact and conclusions of law. In reviewing the case, the court shall not
give deference to any prior decision made in the case and shall not be bound by the
findings of fact or the conclusions of law contained in the agency’s final decision.”
Id. Under this standard of review, the superior court “considers the matter anew[]
and freely substitutes its own judgment for the agency’s.” N.C. Dep’t of Env’t &
Natural Res. v. Carroll, 358 N.C. 649, 658, 599 S.E.2d 888, 894 (2004) (quoting

1 This places the matter in the time window when the Superior Court reviews final agency decisions

rejecting an ALJ decision in the nature of original jurisdiction, as opposed to in the nature of an
appellate court, as is more typical in judicial review of administrative decisions. Section 150B-51
was substantially amended effective January 1, 2012, eliminating the standard of review applicable
to this matter and returning to the more traditional standard where the court’s de novo review is
limited to legal errors. See N.C. Dep’t of Env’t & Natural Res. v. Carroll, 358 N.C. 649, 599 S.E.2d
888 (2004).
Mann Media, Inc. v. Randolph Cnty. Planning Bd., 356 N.C. 1, 13–14, 565 S.E.2d 9,
17 (2002)). The court must make independent findings of fact and conclusions of
law. Id. at 663, 599 S.E.2d at 897. However, its findings must be based on the
administrative record. N.C. Gen. Stat. § 150B-36(b1) (2011) (repealed 2011, eff.
Jan. 1, 2012). Any finding of fact the ALJ made that the agency does not reject in
the manner provided by statute is deemed accepted for purposes of judicial review.
Id. After making the requisite findings and conclusions, the court may “affirm the
decision . . . or remand the case” for further proceedings or it may “reverse or modify
the decision.” Id. § 150B-51(b) (2011).

IV. STATEMENT OF ISSUES

{13} The court addresses the following issues: (1) whether Petitioners have
sustained their burden of proving a change of domicile from North Carolina to
Florida on or about January 20, 2006, or at least before February 3, 2006; and (2) if
so, whether Petitioners are entitled to attorneys’ fees in addition to other relief
because Respondent acted without substantial justification, and because no special
circumstances make such an award unjust.

V. LEGAL PRINCIPLES

{14} North Carolina by statute defines a resident, for tax purposes, as:
[a]n individual who is domiciled in this State at any time during the
taxable year or who resides in this State during the taxable year for
other than a temporary or transitory purpose. In the absence of
convincing proof to the contrary, an individual who is present within
the State for more than 183 days during the taxable year is presumed
to be a resident, but the absence of an individual from the state for
more than 183 days raises no presumption that the individual is not a
resident. A resident who removes from the State during a taxable year
is considered a resident until he has both established a definite
domicile elsewhere and abandoned any domicile in this State. . . .
N.C. Gen. Stat. § 105-134.1(12) (2013), recodified at N.C. Gen. Stat. § 105-153.3 (eff.
Jan. 1, 2014).
{15} The North Carolina Administrative Code (the “Code”) further defines a
“nonresident” as an individual “[w]ho resides in North Carolina for a temporary or
transitory purpose and is, in fact, a domiciliary resident of another state or
country[.]” 17 N.C. Admin. Code 06B.3902(a) (2013). The Code defines domicile as
“the place where an individual has a true, fixed permanent home and principal
establishment, and to which place, whenever absent, the individual has the
intention of returning.” 17 N.C. Admin. Code 06B.3901(a). “A mere intent or desire
to make a change in domicile is not enough; voluntary and positive action must be
taken.” Id.
{16} “Residence” and “domicile” are not interchangeable terms. See In re
Leonard, 77 N.C. App. 439, 440, 335 S.E.2d 73, 74 (1985). Generally, “‘residence’
indicates the person’s actual place of abode, whether permanent or temporary, and
‘domicile’ indicates the person’s permanent home to which, when absent, he intends
to return. Residence is a prerequisite to establishing a domicile, and not vice
versa.” Id. at 440, 335 S.E.2d at 74 (citing Hall v. Wake Cnty. Bd. of Elections, 280
N.C. 600, 187 S.E.2d 52 (1972)).
{17} A person can have only one domicile. Reynolds v. Lloyd Cotton Mills,
177 N.C. 412, 422, 99 S.E. 240, 245 (1919). The “law permits no individual to be
without a domicile.” Hall, 280 N.C. at 608, 187 S.E.2d at 57. Abandoning one
domicile does not, by itself, result in a change of domicile until the person acquires a
new domicile elsewhere. See Reynolds, 177 N.C. at 416, 99 S.E. at 242.
{18} The Code provides a non-exclusive list of sixteen (16) factors to
consider when determining a taxpayer’s legal residence as follows:
(1) Place of birth of the taxpayer, the taxpayer’s spouse, and the
taxpayer’s children; (2) Permanent residence of the taxpayer’s parents;
(3) Family connections and close friends; (4) Address used for federal
tax returns, military purposes, passports, driver’s license, vehicle
registrations, insurance policies, professional licenses or certificates,
subscriptions for newspapers, magazines, and other publications, and
monthly statements for credit cards, utilities, bank accounts, loans,
insurance, or any other bill or item that requires a response; (5) Civic
ties, such as church membership, club membership, or lodge
membership; (6) Professional ties, such as licensure by a licensing
agency or membership in a business association; (7) Payment of state
income taxes; (8) Place of employment or, if self-employed, place where
business is conducted; (9) Location of healthcare providers, such as
doctors, dentists, veterinarians, and pharmacists; (10) Voter
registration and ballots cast, whether in person or by absentee ballot;
(11) Occasional visits or spending one’s leave “at home” if a member of
the armed services; (12) Ownership of a home, insuring a home as a
primary residence, or deferring gain on the sale of a home as a primary
residence; (13) Location of pets; (14) Attendance of the taxpayer or the
taxpayer’s children at State supported colleges or universities on a
basis of residence—taking advantage of lower tuition fees; (15)
Location of activities for everyday “hometown” living, such as grocery
shopping, haircuts, video rentals, dry cleaning, fueling vehicles, and
automated banking transactions; (16) Utility usage, including
electricity, gas, telecommunications, and cable television.
17 N.C. Admin. Code 06B.3901(b).
{19} Actual residence at a new location cannot constitute a domicile without
an intent to make that new location a permanent home. Reynolds, 177 N.C. at 419,
99 S.E. at 244. Intent to establish a new domicile is not enough without actually
arriving at the new place and acquiring a home there. Id. at 422, 99 S.E. at 245–46.
The shortness of time or the manner in which a person enjoys the new home does
not defeat the acquisition of a new domicile as long as both actual residence and the
intent of making the new residence a permanent home exist. Id. at 418, 99 S.E. at
243. Intent must be supported by a voluntary and positive action. 17 N.C. Admin.
Code 06B.3901(a). The new residence acquired must be a true, fixed permanent
home and principal establishment, and to which place, whenever absent, the
individual intends to return. Id.
{20} A true, fixed permanent home and principal establishment is an actual
physical dwelling that a person intends to use as a home permanently as opposed to
temporarily. See Howard v. Queen City Coach Co., 212 N.C. 201, 203, 193 S.E. 138,
140 (1937) (“A place of [domicile] in the common-law acceptation of the term means
a fixed and permanent abode, a dwelling place for the time being, as
contradistinguished from a mere temporary local residence.”); Hall, 280 N.C. at 605,
187 S.E.2d at 55 (“[A place of] [d]omicile denotes one’s permanent, established home
as distinguished from a temporary, although actual, place of residence.”).
{21} The burden of proving that a change in domicile has occurred rests
upon the person making the allegation. Farnsworth v. Jones, 114 N.C. App. 182,
187, 441 S.E.2d 597, 601 (1994) (quoting Hall, 280 N.C. at 608, 187 S.E.2d at 57).
{22} Determining domicile is a fact-intensive inquiry that depends on the
particular facts of the case. Hall, 280 N.C. at 608, 187 S.E.2d at 56. There is no
single determinative fact; rather, the decision requires consideration of all the facts
and circumstances taken together. Id. at 609, 187 S.E.2d at 57. A person’s
testimony regarding his intention to change domiciles is competent, but not
conclusive evidence. Id. A court must also consider all of the surrounding
circumstances and conduct of the person in determining whether he or she has
established a change in domicile. Id.
{23} “[T]he court may, in its discretion, allow the prevailing party to
recover reasonable attorney’s fees . . . if: (1) [t]he court finds that the agency acted
without substantial justification in pressing its claim against the party; and (2)
[t]he court finds that there are no special circumstances that would make the award
of attorney’s fees unjust.” N.C. Gen. Stat. § 6-19.1 (2013).

VI. FINDINGS OF FACT

{24} The court makes the following findings of fact based on the Official
Record:
A. The Parties

{25} Petitioners are a married couple who were domiciled in North Carolina
at least until January 19, 2006, and for their entire lives before that date. They
filed North Carolina tax returns for the 2005 tax year and for each year prior to
2005, but have asserted that they were non-residents during the 2006 and 2007 tax
years.
{26} Respondent is the North Carolina Department of Revenue.
B. Events prior to January 20, 2006

{27} In 1984, Mr. Fowler founded Commercial Grading, Inc. (“Commercial
Grading”), a North Carolina company, which did business as “Fowler Contracting.”
Mr. Fowler devoted his time and effort to building Commercial Grading into a
highly successful enterprise. He held the controlling majority interest in the
company. Mrs. Fowler also worked at the company and dedicated substantial effort
on its behalf.
{28} Petitioners began considering Florida as a potential retirement
location as early as the 1990’s.
{29} In 1999, while residing in Apex, North Carolina, Petitioners purchased
property located at 7801 Old Stage Road, Raleigh, North Carolina. Petitioners
initially considered building an 11,000 square-foot house on this property, but built
a smaller 2,080 square-foot house, with two multi-bay garages of approximately
3,000 square feet each—one equipped with an office, car wash and dog wash—
special kennels, and elaborate landscaping and gating. At the time Petitioners
moved to the property, the property had an approximate value of $2.8 million. Once
constructed, Petitioners considered this their true, fixed permanent home and
principal establishment to which they intended to return when absent.
{30} Over several years, Petitioners visited numerous cities in Florida in
search of real estate. In 2002, they purchased a three-bedroom, 3,400 square-foot
house in Naples (the “Tiburon House”) for approximately $1.6 million. In 2003, in
connection with the move to their new Old Stage Road residence, Petitioners moved
furniture to the Tiburon House, including some family heirlooms and valued
furniture. At this time, the Tiburon House was Petitioners’ secondary residence,
which they did not consider their true, fixed permanent home and principal
establishment to which they intended to return when absent.
{31} In 2004, Mr. Fowler was diagnosed with kidney cancer and underwent
surgery to remove his kidney. Petitioners accelerated their efforts to sell
Commercial Grading and retire to Florida.
{32} In January 2005, Petitioners formed Fowler Aviation, Inc., a Florida
company, to sell a new type of private jet. They invested $1.775 million in the
venture, but the money was fully refunded in 2006 when the FAA would not certify
the jet for production and sale.
{33} In early 2005, Petitioners engaged an investment-banking firm to
solicit buyers for Commercial Grading. They received and considered three bona
fide offers. In October 2005, Mr. Fowler signed a preliminary letter of intent
(“Letter of Intent”) with a private equity firm, Long Point Capital, to sell a majority
of his shares in Commercial Grading. Long Point was a “financial buyer,” meaning
that it intended to make a large cash infusion but was not itself experienced in
Commercial Grading’s line of business. The transaction was then structured so that
Mr. Fowler would sell his majority interest at a price determined by a negotiated
company valuation, and he would retain a minority interest. Mr. Fowler was
further expected to remain the company’s President, and Mrs. Fowler was also
expected to remain with the company for a period after the sale.
{34} After signing the Letter of Intent, Petitioners told various other
acquaintances in both Florida and North Carolina of their intent to move to Florida.
{35} Also, shortly after signing this Letter of Intent, Petitioners contracted
to buy a four-bedroom, 9,300 square-foot house in Naples, Florida (“the Quail West
House”), while retaining the Tiburon House. They closed on their purchase in
August 2006, but later sold the Quail West House in April 2009 without having
lived in it.
{36} In late 2005, Petitioners consulted their accountant, Graham
Clements, to determine how to accomplish a change of domicile to Florida. As part
of this consultation, Mr. Clements informed Petitioners that if they became Florida
residents prior to January 1, 2006, their holdings in Commercial Grading would be
subject to Florida’s intangibles tax. Mr. Clements advised Petitioners to change
their domicile to Florida after January 1, 2006, but before the close of the sale to
Long Point, which would be a taxable event. To effect the transfer, Mr. Clements
advised Petitioners to own a home in Florida, hire a Florida attorney, file a
Declaration of Domicile in Florida, spend at least 183 days in Florida, and take
some “official action,” such as changing their driver’s licenses and registering to
vote.
{37} Also in late 2005, Mr. Fowler sought assistance from William Graef, a
friend who owned an aviation company, for the purpose of buying, maintaining, and
storing a private airplane. Petitioners contracted in early 2006 to purchase a plane
from Mr. Graef for approximately $19.2 million. Petitioners and Mr. Graef
unsuccessfully attempted to locate suitable hangar space with necessary services in
Naples. They continued to charter private planes from Raleigh until the plane was
delivered in Raleigh on October 2007, where it was registered and then stored.
During this period, the predominant portion of the Fowlers’ various travels were on
flights originating in and returning to Raleigh.
{38} Lynnwood Mallard was Petitioners’ counsel in connection with the sale
of Commercial Grading. Mr. Mallard advised Mr. Fowler that Long Point would
require Petitioners to continue working for Commercial Grading after the sale. The
length and nature of the requirement became a significant point in negotiations for
a sales agreement. Mr. Mallard obtained assurances that Mr. Fowler’s work need
not necessarily be on-site in North Carolina.
{39} On January 19, 2006, Petitioners signed the binding Securities
Purchase Agreement for the sale of the majority interest in Commercial Grading.
This event did not trigger taxes arising from the actual sale, which was set to occur
in early February.

C. Efforts on January 20, 2006

{40} On January 20, 2006, the Fowlers left for Naples, Florida, on a
chartered plane for the purpose of taking “official action” to evidence their change of
domicile. They tried but could not complete certain efforts on this trip because they
left certain necessary papers in North Carolina. At the driver’s license office,
Petitioners presented their North Carolina licenses and asked for Florida driver’s
licenses, but were denied for lack of additional identification. They attempted but
were unable to register to vote for the same reason. At this time, Petitioners had
one of their several automobiles in Florida. They registered that single car in
Florida, but signed the registration form as non-residents, listing their North
Carolina address. Petitioners also unsuccessfully attempted to obtain a post office
box and register their dog on January 20, 2006.
{41} Petitioners stayed at the Tiburon House on this trip, which they
contend had then become their true, fixed permanent home and principal
establishment to which they intended to return when absent.
{42} On or about January 22, 2006, Petitioners returned to their Old Stage
Road home, which they contend had then become their secondary home where they
would reside on a temporary and transitory basis until and for the purpose of
completing their ongoing obligations assumed under the sales transaction.

D. Events Following the Sale of Commercial Grading, Including Continuing
North Carolina Ties

{43} On February 3, 2006, Petitioners closed the sale of their majority
interest in Commercial Grading to Long Point Capital for $106 million. Long Point
wired approximately $70 million to Mr. Fowler’s account with Wachovia Bank in
North Carolina. Mr. Fowler retained a 32.6% ownership interest in the company.
{44} Mr. Fowler signed an Employment Agreement with Long Point on
February 3, 2006, pursuant to which he was employed as President for a term of
three years and responsible for managing day-to-day operations of the company. He
remained employed until February 3, 2009. Mrs. Fowler also signed a three-year
Employment Agreement on February 3, 2006, as Assistant Secretary, and remained
employed until February 3, 2009. Efforts to hire a president to replace Mr. Fowler
and assume his responsibilities earlier than his contract’s expiration were
unsuccessful.
{45} On February 8, 2006, Mr. Fowler made gifts to his brothers, Robert
Fowler and Ricky Fowler, of $500,000 each. Mrs. Fowler also made gifts to Robert
and Ricky Fowler of $500,000 each. The gifts were made using checks showing the
Fowlers’ North Carolina address.
{46} Mrs. Fowler also made significant charitable contributions in North
Carolina after February 3, 2006. She made a large contribution to the church her
father attended before his death, which she indicated was in appreciation for that
church’s care for him prior to his death.
{47} Petitioners returned to Florida on March 10, 2006, and successfully
completed the matters that they were unable to complete on their January 20, 2006,
trip. They signed and filed a Declaration of Domicile in Florida. They obtained a
Naples post office box and Florida driver’s licenses, and they registered to vote.
They have since voted in person in Florida elections. In August 2006, Petitioners
advised the Wake County Board of Elections to remove them from the voting rolls of
Wake County. They have not voted in North Carolina since January 20, 2006.
{48} In spring 2006, Petitioners hired Cooper Pulliam, an investment
advisor in Atlanta, Georgia, to buy municipal bonds. Based on his understanding
that Petitioners were Florida residents, Mr. Pulliam purchased a portfolio of
municipal bonds from across the country. For the entire 2006 year, Petitioners
further maintained their investment account with Wachovia Bank, which invested
only in North Carolina state and municipal bonds through transactions totaling
over $91 million.
{49} Petitioners traveled extensively after the sale, often to locations
outside of either North Carolina or Florida. They spent substantial time in Myrtle
Beach, South Carolina. Counting days, the Fowlers spent the most days in North
Carolina in 2006 and 2007. Mr. Fowler testified that they did so because his duties
as President required “face-to-face” meetings and “riding the jobs.” In 2006, Mr.
Fowler spent 162 and 51 days in North Carolina and Florida respectively. In 2007
he spent 168 and 27 days in North Carolina and Florida respectively. In 2006, Mrs.
Fowler spent 173 and 47 days in North Carolina and Florida respectively. In 2007,
she spent 180 and 27 days in North Carolina and Florida respectively. Neither Mr.
Fowler nor Mrs. Fowler spent 183 days in North Carolina in either 2006 or 2007.
{50} When in Raleigh, Petitioners stayed at their Old Stage Road home.
They returned to their home in Naples on several occasions throughout 2006 and
2007.
{51} Petitioners did not list their Old Stage Road house for sale in 2006.
They testified that they were advised not to list the house because of the declining
real estate market. Ultimately, Petitioners listed the house on December 1, 2010,
at $7.9 million.
{52} Petitioners used their Florida address on their North Carolina
Individual Income Tax Returns filed in April 2006 and thereafter. Mrs. Fowler
continued to use her North Carolina address on her Privilege License Tax Returns
from 2006 through 2010, although the checks Mrs. Fowler used to pay the taxes due
on her Privilege License Tax Returns displayed her Florida address. Mrs. Fowler
retained her North Carolina real estate license and received referral fees for
properties in South Carolina and Florida, but never for property sold in North
Carolina. During 2006 and 2007, Mrs. Fowler completed her continuing education
requirements in North Carolina. Mrs. Fowler did not obtain a Florida real estate
license.
{53} Throughout 2006, the Fowlers changed their address from North
Carolina to Florida with various businesses. However, throughout 2006 and 2007,
they also continued to use the Old Stage Road address in Raleigh for certain
correspondence and billing, and on K-1s, 1099s, bills, and bank statements.
{54} In 2006 and 2007, Mrs. Fowler went to church in both Naples and
Raleigh. While she indicates that she contributed to churches in Naples, the record
reflects much more significant giving in North Carolina during this period.
Petitioners donated cash and property to Westover United Methodist Church in
Raleigh in the amounts of $102,580 and $24,985 in 2006 and 2007, respectively.
During 2006 and 2007, Petitioners further donated to numerous other North
Carolina charitable organizations.
{55} In 2006 and 2007, Petitioners were members of the Tiburon Club and
the Quail West Club in Florida, but of no club in North Carolina. They obtained the
Quail West Club membership to make the Quail West property more attractive to
prospective buyers.
{56} In 2006, Mr. Fowler used doctors in North Carolina and
Massachusetts. In 2007, he used doctors in North Carolina, Massachusetts, and
Florida. The majority of Petitioners’ 2006 and 2007 medical expenses were for
treatment at a Massachusetts facility associated with the Cleveland Clinic.
{57} In 2006 and 2007, the Fowlers did everyday “hometown” activities
wherever they were.
{58} In 2006, the Fowlers hired Florida counsel to create their first estate
plan. In 2006 and 2007, Mr. Fowler obtained legal services from at least two North
Carolina firms.
{59} In 2006 and 2007, Mr. Fowler served as the registered agent for
several North Carolina business entities. On February 1, 2007, he established
Buffaloe Country, LLC, as a North Carolina limited liability company, which held
several North Carolina properties not associated with Commercial Grading. On
March 12, 2007, Mr. Fowler incorporated and was the sole owner of Leesville Road
Ventures, LLC, a North Carolina limited liability company. Mr. Fowler used his
Florida address when organizing these companies.
{60} Petitioners bought a homeowners insurance policy for their home at
7801 Old Stage Road in Raleigh for the period of July 31, 2006, through July 31,
2007. The policy included the stipulation that “The described dwelling is not
seasonal or secondary.” The Fowlers insured the contents of the Old Stage Road
property for $371,000. They did not insure their Florida property.
{61} The Fowlers donated to candidates running for office in North Carolina
but did not contribute to Florida candidates. Mr. Fowler testified that each
contribution was tied to candidates whose efforts benefitted business holdings.
{62} Petitioners held an elaborate birthday party for Mr. Fowler in North
Carolina at the Old Stage Road property at a cost approximating $1.3 million, to
which customers and employees were invited.
E. Assessment and Calculation of Taxes

{63} In its Final Agency Decision, the Department calculates the taxes,
penalties, and interest as follows:
Individual Income Tax – Petitioners

Tax $ 6,325,106.00
Penalty $ 1,581,276.50
Interest $ 2,138,925.56
Total Due as of July 17, 2013 $10,047,039.78
Plus daily interest which accrues at the rate of $865.86 per day.

Gift Tax – Steve Fowler

Tax $ 96,560.00
Penalty $ 57,936.00
Interest $ 33,159.53
Total Due as of July 17, 2013 $ 187,681.97
Plus daily interest which accrues at the rate of $13.22 per day.

Gift Tax – Beth Fowler

Tax $ 118,180.00
Penalty $ 70,908.00
Interest $ 40,584.03
Total Due as of July 17, 2013 $ 229,704.39
Plus daily interest which accrues at the rate of $16.18 per day.

{64} The court notes that the three Totals do not reflect the sum of the tax,
penalty, and interest in each category. The totals apparently include two additional
days of interest. The total of all taxes, interests, and penalties due on July 17, 2013
is $10,464,426.14.
{65} On July 17, 2013, Petitioners paid Respondent $10,471,588.22. (Pet.
Judicial Review ¶ 9; Resp. Pet. Judicial Review ¶ 9.) The difference between the
amount paid and the amount due as stated in the Final Agency Decision is eight
days’ interest.
F. Summary of Positions

{66} Although the determination of domicile may be based on a totality of
circumstances, the Parties, in their respective briefs, emphasize certain facts.
{67} Caroline Krause-Iafrate (“Ms. Krause-Iafrate”) was the Department’s
Lead Auditor for its Final Determination. Ms. Krause-Iafrate based her evaluation
of the Fowlers’ domicile on the “totality of facts and circumstances.” She did not
prepare a “scorecard” weighting the various factors that she considered.
{68} In its brief, Respondent catalogs particular actions or inactions it
contends are inconsistent with the necessary intent in 2006 and 2007 not only to
establish a domicile in Florida, but also to abandon the North Carolina domicile.
The brief highlights the following: (a) the Fowlers continued to own and occupy
their home in Raleigh and insure it as their primary residence; (b) the Fowlers
spent more time in North Carolina than they did in Florida; (c) the Fowlers signed
the three-year employment contract with Commercial Grading and continued to
work in Raleigh; (d) Mr. Fowler had significant other business ventures in Raleigh;
(e) the Fowlers traveled to and from Raleigh, North Carolina, more often than they
did to and from Naples, Florida; (f) the Fowlers maintained and insured their plane
and most of their cars (including a Porsche and a Ferrari) in Raleigh, North
Carolina; (g) the Fowlers continued to use their Old Stage Road address on various
documents such as their 1099s for tax years 2006 and 2007, the 2006 K-1 for Fowler
Aviation issued to Mr. Fowler, Mrs. Fowler’s 2006 and 2007 bank statements,
invoices from the Fowlers’ attorney, Mr. Mallard, from 2006 through 2008, the
Fowlers’ checks and credit card statements, and Mr. Fowler’s Aircraft Registration
Application in 2007 and related documents; (h) Mrs. Fowler maintained her North
Carolina professional license and did not obtain a Florida license; (i) the Fowlers’
“ministerial acts,” such as obtaining Florida driver’s licenses or registering to vote
in Florida, did not occur until March 10, 2006, after the stock sale had closed and
the gifts had been given to Mr. Fowler’s brothers; (j) the Fowlers’ pet dog, D8,
stayed at Old Stage Road and received primary veterinary care in Raleigh; (k) the
Fowlers continued to receive medical care in North Carolina, and made charitable
and political donations in North Carolina in 2006 and 2007, (l) the Fowlers had the
elaborate birthday party at the Old Stage Road home in September 2006; and (m)
the Fowlers did not effectively make Florida their new domicile by actually residing
there or integrating themselves into their new community in a manner consistent
with having a domicile in Florida. In sum, Respondent contends that Petitioners
did no more than take limited actions in an effort to avoid taxation and that they
never had the necessary intent to abandon and did not actually abandon their
North Carolina domicile.
{69} Petitioners, in their Petition and Brief, contend that the Department
impermissibly failed to include in its Final Determination facts that demonstrate
the necessary intent coupled with voluntary and positive action adequate to
effectuate the change in domicile, and which facts also explain that Petitioners’
continued activities in North Carolina were only in connection with their temporary
and transitory obligations assumed as a part of their sale to Long Point Capital.
These facts include: (a) the Fowlers visited government offices in Florida on
January 20, 2006, and registered a car in Florida; (b) the Fowlers kept working for
Commercial Grading because Long Point required it; (c) the Fowlers used their
Raleigh property during the Department’s audit period only to fulfill their
contractual obligations with Long Point; (d) Mrs. Fowler did not obtain a Florida
real estate license because she could still receive referral fees without one; (e) Mrs.
Fowler never sold real estate in North Carolina; (f) the Ernst & Young
entrepreneur’s award Fowler received in April 2006 was for his performance prior to
2006; (g) the Fowlers gave money to a church in North Carolina because the church
members had been kind to Mrs. Fowler’s late father in his final years; (h) the
Fowlers contributed money to candidates in Wake County elections who had helped
the Fowlers’ business; (i) the Fowlers kept some cars in North Carolina because
their Florida home had limited garage space; (j) the Fowlers stored their airplane in
North Carolina because of their relationship with Mr. Graef and his company; (k)
the Fowlers used doctors in North Carolina (in addition to doctors in other states)
based on confidence and long-standing relationships arising from life-threatening
circumstances; and (l) the Fowlers’ two dogs in Raleigh were guard dogs that
protected their isolated house, rather than pets like D8, the dog they took with
them when traveling or in Florida. In sum, Petitioners contend the overall record
demonstrates that they met their burden of demonstrating a change in domicile by
establishing a new domicile in Florida and abandoning their domicile in North
Carolina.

VII. CONCLUSIONS OF LAW

{70} Based on the above findings of fact, applying the governing legal
principles, the court makes the following conclusions of law:
{71} The Fowlers can have but one domicile. The Fowlers intended to
change and did change their domicile from North Carolina to Florida effective as of
January 20, 2006, effecting an intent that preceded that date.
{72} The Fowlers took adequate voluntary and positive actions in Florida on
January 20, 2006 to establish their new domicile. These intentional, voluntary, and
positive actions were adequate, even though the Fowlers did not complete certain
activities until the return trip on March 10, 2006.
{73} On January 20, 2006, the Fowlers were present in Florida and
intended to return there whenever absent thereafter. They owned and lived in the
Tiberon House, a true, fixed permanent home and principal establishment to which
they intended to return when absent.
{74} On and after January 20, 2006, the Fowlers were North Carolina non-
residents. On that date, they intended their home at Old Stage Road in Raleigh,
North Carolina, to be their secondary home that they would no longer maintain as
their permanent home. After January 20, 2006, they used this property as a
temporary residence for the completion of temporary and transitory contractual
obligations undertaken in connection with the sale of the majority interest in
Commercial Grading.
{75} On January 20, 2006, the Fowlers intended to abandon and did
abandon North Carolina as their domicile.
{76} The Fowlers were not required to remove all of their possessions and
sever all ties with North Carolina to effect a change in domicile. Hall, 280 N.C. at
610–11, 187 S.E.2d at 58.
{77} The Fowlers’ intent to change domicile was not improper or rendered
ineffective because the change was timed to maximize tax savings. Additionally,
Mr. Fowler’s unexpected medical condition accelerated the need to carry out a
preexisting future intent for this change in domicile.
{78} Conversely, the Fowlers were not in Florida for a temporary or
transitory purpose on and after January 20, 2006.
{79} Continued investments through the North Carolina Wachovia account,
charitable and political contributions, maintaining personal property in North
Carolina, and various other actions concerning North Carolina do not negate that
Petitioners abandoned North Carolina as a domicile.
{80} This case must be considered on its own unique facts. Facts here are
distinguishable from cases where activities in the claimed new domicile were
temporary or transitory. See, e.g., Farnsworth, 114 N.C. App. at 188, 441 S.E.2d at
602. The decision in Mauer v. Commissioner of Revenue, 829 N.W.2d 59, 75 (Minn.
2013), is unpersuasive because its facts are distinct.
{81} Any attempt to weigh the non-exclusive list of sixteen (16) factors in 17
N.C. Admin. Code 06B.3901(b) does not lead to a necessary finding that the Fowlers
failed to abandon their domicile in North Carolina on January 20, 2006. Under the
facts of this case, four of the sixteen factors favor a North Carolina domicile (1, 3, 6
& 9), one favors a Florida domicile (10), six are neutral (4, 5, 12, 13, 15 & 16), two
are beyond Petitioners’ control (2 & 8), and three are inapplicable (7, 11, & 14).
{82} The Fowlers have satisfied the three-part test for change of domicile
established in Farnsworth.
{83} Petitioners have satisfied their burden to prove a change of domicile to
Florida as of January 20, 2006.
{84} Respondent acted beyond its legal authority in imposing 2006 and
2007 income and gift taxes, together with penalties and interest on the Petitioners.
{85} Petitioners are entitled to recover their taxes, penalties, and interest
paid to Respondent for the tax years 2006 and 2007 together with interest at the
legal rate from the date of payment to the date of refund.
{86} Petitioners are not entitled to attorneys’ fees.
{87} The Department correctly recognized that a change of domicile must be
determined from the totality of circumstances, and that a taxpayer claiming a
change in domicile has the burden of proving such change by demonstrating both
intent to establish a new domicile and to abandon the old one. The court, after a
thorough and careful review of the record, has accepted and found that the Fowlers’
presence in North Carolina after January 20, 2006, was as non-residents for
temporary and transitory purposes. However, the record provided the Department
with a substantial and reasonable basis to pursue its position that the Fowlers had
not actually abandoned their domicile in North Carolina in 2006 or 2007.
{88} The Department had substantial justification in pressing its claim
against Petitioners.
{89} The Department did not act without justification by failing to “score”
each of the various factors leading to its decision.
{90} An award of attorneys’ fees against Respondent on the facts of this
case would be unjust.
VIII. CONCLUSION

{91} For the foregoing reasons, the Court REVERSES the Final Agency
Decision of the Department of Revenue. The Department shall refund the amounts
the Fowlers paid to the Department under protest, together with interest at the
legal rate from the date of that payment until refunded.

IT IS SO ORDERED, this 6th day of August, 2014.