Kenneth Dotson v. Commissioner of Revenue (May 21, 2009)

 COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


  
KENNETH DOTSON            v.		COMMISSIONER OF REVENUE


Docket No. C276419				Promulgated: 
							May 21, 2009 
		  				

This is an appeal under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39, from the refusal of the appellee, the Commissioner of Revenue ("Commissioner" or "appellee"), to abate personal income taxes for the tax year ended December 31, 1999.
 Commissioner Rose heard this appeal.  Chairman Hammond and Commissioners Scharaffa, Egan, and Mulhern joined him in the decision for the appellee.  
	These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.


	J. Thomas Price, Esq. and William A. Hazel, Esq., for the appellant.
	
	Laura S. Kershner, Esq. and Kevin M. Daly, Esq., for the appellee.





		      FINDINGS OF FACT AND REPORT

At issue in this appeal is whether appellant Kenneth Dotson ("Mr. Dotson" or "appellant") was domiciled in Massachusetts at the time he received $5,317,145.35 ("disputed income") as a result of the exercise of certain stock options on January 22, 1999. On April 15, 2000, Mr. Dotson timely filed a non-resident Massachusetts personal income tax return for the tax year 1999, which reported the disputed income as non-Massachusetts source income.  He received a refund in the amount of $312,287.  Following an audit of Mr. Dotson's personal income tax return, the Commissioner issued to Mr. Dotson a Notice of Intention to Assess dated November 12, 2002, which reflected an intention to assess personal income taxes in the amount of $320,294, along with statutory interest, based on the inclusion of the disputed income in the appellant's Massachusetts taxable income.  By Notice of Assessment dated September 18, 2003, the Commissioner assessed personal income taxes in that amount, along with interest.   
Mr. Dotson timely filed an Application for Abatement with the Commissioner on November 25, 2003, seeking an  abatement of the additional assessment. By Notice of Abatement Determination dated July 15, 2004, the Commissioner denied Mr. Dotson's request for an abatement.  Mr. Dotson timely filed his Petition Under Formal Procedure with the Appellate Tax Board ("Board") on September 13, 2004.  On the basis of these facts, the Board found that it had jurisdiction to hear and decide this appeal.
The resolution of this appeal turns on whether Mr. Dotson was domiciled in Massachusetts at the time he received the disputed income, rather than in Florida, as Mr. Dotson claimed.  Based on the Statement of Agreed Facts, testimony and exhibits offered into evidence at the hearing of this appeal, the Board made the following findings of fact.  
Mr. Dotson, who testified at the hearing of this appeal, stated that he was born in Centerville, Tennessee, where he lived throughout his childhood and teenage years.  Mr. Dotson testified that he left Tennessee to attend the University of Mississippi, where he earned both an undergraduate and a graduate degree.  After receiving his master's degree in 1983, Mr. Dotson worked briefly in Memphis, Tennessee before moving to Ft. Lauderdale, Florida in 1985 for another job opportunity.  In 1986, Mr. Dotson left Florida and moved to Connecticut for yet another job opportunity.  He remained there until 1990, when he returned to Florida.  
In 1994, while in Florida, Mr. Dotson began a business venture with a local entrepreneur.  That venture ultimately became Sportsline.com, a very successful business that was later acquired by CBS.  What began as a small company grew into a public company, which employed approximately 400 people by 1998.  Mr. Dotson testified that he preferred a small, start-up company environment to that of a large public company, so he began to look for new employment opportunities.  
Sometime in late 1997 or early 1998, Mr. Dotson was contacted by a Cambridge, Massachusetts company, Sage Enterprises, Inc., d/b/a PlanetAll ("PlanetAll"), which was a technology company in the process of developing a web-based product to allow users to synchronize their contact information and calendars.  In June of 1998, PlanetAll offered Mr. Dotson the position of Senior Vice President, Marketing & Business Development.  The offer was formalized in a letter dated July 1, 1998 and accepted by Mr. Dotson on July 2, 1998.  He was scheduled to commence employment with the company in Massachusetts in August of 1998.  
During July of 1998, while Mr. Dotson was still in Florida, he learned that Amazon.com, Inc. ("Amazon.com") had engaged in discussions to buy PlanetAll.  Mr. Dotson testified that he was not interested in working for Amazon.com for a number of reasons, including that he had no interest in moving to Seattle, Washington, where Amazon.com was based.  Mr. Dotson also testified that he was not interested in going through the acquisition process with another company because his experiences with corporate acquisitions in the past had been negative.  
Mr. Dotson testified that this change of events caused him to reconsider his decision to join PlanetAll, and he informed the company in late July that he was no longer interested in coming to work for them.  Shortly thereafter, Mr. Dotson received a telephone call from Jeff Bezos, the founder of Amazon.com.  According to Mr. Dotson, he expressed to Mr. Bezos his concerns regarding Amazon.com's potential acquisition of PlanetAll and his reluctance to move to Seattle.  Mr. Dotson testified that Mr. Bezos then guaranteed him that if PlanetAll were acquired by Amazon.com and moved to Seattle, the stock options given to Mr. Dotson as a part of his employment offer would immediately vest, allowing Mr. Dotson to cash in and resign his employment.  Based on this promise, Mr. Dotson once again agreed to join PlanetAll and his employment agreement was finalized on August 3, 1998.  At or around this time, he resigned his employment with Sportsline.com. 

 Mr. Dotson travelled from Florida to Boston on August 16, 1998 and commenced work at PlanetAll the next day.  In preparation for his move to Massachusetts, Mr. Dotson placed certain personal items in storage in a warehouse space in Florida, which belonged to his friend, Peri Proctor, who also testified at the hearing of this appeal.  Mr. Dotson had rented an apartment in Boca Raton, Florida during the time he was working at Sportsline.com but that rental terminated in September of 1998, nearly simultaneously with his move to Boston. Much of Mr. Proctor's testimony concerned the circumstances surrounding the termination of Mr. Dotson's lease.  Both Mr. Proctor and Mr. Dotson testified that they believed that Mr. Dotson's landlord did not renew the lease because of complaints from neighbors about the noise made by Mr. Dotson's dogs.  After the termination of his lease, Mr. Dotson did not maintain a residence in Florida.  Mr. Dotson owned two cars, one of which he brought to Massachusetts and another which he left in Florida.  
Mr. Dotson arranged for the short-term rental of a furnished apartment in a building located at 345 Commonwealth Avenue in Boston.  He lived at that address from August 16, 1998 through September 7, 1998. However, because that building did not allow pets, Mr. Dotson quickly looked for another apartment.  Mr. Dotson had left his two beloved teacup poodles behind in Florida and planned to retrieve them when he returned to Florida for Labor Day weekend.  Mr. Dotson therefore secured another short-term, furnished rental apartment, located at 335 Beacon Street, and rented that apartment from September 7, 1998 through October 5, 1998.
Ultimately, Mr. Dotson decided to buy, rather than rent, a home in the Boston area.  He began looking at real estate in early August of 1998, and put down a deposit on a condominium located at 447 Marlborough Street in Boston on August 9, 1998, during a weekend visit to Boston.  Mr. Dotson finalized the purchase of that condominium on September 21, 1998, and moved in immediately.  The purchase price was $480,000.
During the fall of 1998, Mr. Dotson lived in Boston and worked at PlanetAll, although he left Massachusetts on several occasions for visits to family and friends in Florida, Tennessee and elsewhere. Despite the fact that he frequented local dining establishments, Mr. Dotson testified that his focus while in Massachusetts was his job, not his social life.  According to Mr. Dotson, he made few, if any, new friends in Massachusetts and socialized infrequently.  Mr. Dotson did not register his car in Massachusetts or acquire a Massachusetts driver's license, nor did he change his voter registration.  The record reflected that he was registered to vote in Florida from 1992 to 1999.  
In early November of 1998, Mr. Dotson learned that Amazon.com was moving PlanetAll to Seattle.  He tendered his resignation on or about November 8, 1998.  Mr. Dotson received a letter dated November 25, 1998, detailing the terms of separation from his position.  That letter reflected the company's intention to honor Mr. Bezos' oral promise to Mr. Dotson regarding the vesting of his stock options and further set the effective separation date as November 9, 1998.  After retaining an attorney to review the terms of the separation agreement and engaging in brief negotiations, Mr. Dotson signed a separation agreement on January 11, 1999.  That agreement was signed by Amazon.com as successor in interest to PlanetAll on January 14, 1999.
On January 22, 1999, Mr. Dotson exercised his options to purchase 91,724 shares of Amazon.com.  The exercise of these stock options generated income in the amount of $5,317,145.35, which was reflected on a Form W-2 issued to Mr. Dotson and is the disputed income at issue in this appeal.
Aware that his employment in Massachusetts was coming to an end, Mr. Dotson decided to return to Florida. He began looking for houses there in December of 1998. In January of 1999, Mr. Dotson made an offer on a home in Florida, but that offer was not accepted until February 4, 1999.  Mr. Dotson closed on that property on March 10, 1999, and moved in immediately.  He sold his condominium at 447 Marlborough Street in late 1999, using the services of a broker.  Mr. Dotson testified that he left Massachusetts in early March of 1999 and did not return to his Marlborough Street condominium after that time.  
Thereafter, Mr. Dotson lived in Florida for some time before subsequently moving to Chicago, Illinois, where he resided at the time of the hearing of this appeal.  
	On the basis of the foregoing facts, the Board found that Mr. Dotson moved to Massachusetts in August of 1998, acquired a Massachusetts residence, and began a new job in Massachusetts.  The Board found that in so doing, Mr. Dotson came to Massachusetts in August of 1998, with an intent to remain for an indefinite period of time.  In addition, the Board found that, following the termination of the lease for his rental apartment in Boca Raton in September of 1998, Mr. Dotson did not maintain a residence in Florida.  
Based on these subsidiary findings, the Board found and ruled that Mr. Dotson abandoned his Florida domicile and established a new domicile in Massachusetts by September of 1998.  Further, the Board found and ruled that he remained domiciled in Massachusetts until at least March of 1999, when he returned to Florida and acquired a residence there.  The Board therefore found and ruled that the income received by Mr. Dotson as a result of the exercise of his stock options was Massachusetts taxable income because Mr. Dotson was a Massachusetts domiciliary when he received that income.  Based on these findings, the Board issued a decision for the appellee.  


				    OPINION
Under G.L. c. 62 § 2, Massachusetts residents are taxed, with certain limitations not relevant here, on all of their income from whatever sources derived.  In contrast, Massachusetts taxes non-residents only on income from Massachusetts sources.  See G.L. c. 62, § 5A.
Accordingly, if the appellant was domiciled in Massachusetts when he received the disputed income, all of that income is subject to tax in Massachusetts regardless of whether the income was from Massachusetts sources.
Domicile has been defined as "the place of actual residence with intention to remain permanently or for an indefinite time and without any certain purpose to return to a former place of abode." McMahon v. McMahon, 31 Mass. App. Ct. 504, 505 (1991).  A person's domicile is primarily a question of fact, but the elements to be considered in locating a domicile present a question of law. Reiersen v. Commissioner of Revenue, 26 Mass. App. Ct. 124, 124-25 (1988).  The most persuasive indicators of domicile are the physical, business, social and civic activities of the taxpayer.  See Id. at 131.  
 A change of domicile occurs "when a person . . . is physically present in the place and intends to make that place his home for the time at least; the fact and intent must concur." Reierson, 26 Mass. App. Ct. at 125(citing Hershkoff v. Board of Registered Voters of Worcester, 366 Mass. 570, 577 (1974)).  Moreover, "[i]t is a general rule that the burden of showing a change of domicil is upon the party asserting the change."  Mellon Nat'l Bank & Trust Co. v. Comm'r of Corporations and Taxation, 327 Mass. 631, 638 (1951); Horvitz v. Commissioner of Revenue, 51 Mass. App. Ct. 386, 394 (2001). See also Commonwealth v. Davis, 284 Mass. 41, 49 (1933) ("The burden of proof that his domicil was changed rested on the defendant because he is the one who asserted that such change had taken place.")
In the present appeal, it was undisputed that Mr. Dotson had been domiciled in Florida for many years prior to 1998.  Because the Commissioner was the party asserting that Mr. Dotson changed his domicile to Massachusetts, the Commissioner had the burden of proving that Mr. Dotson's domicile had changed.  The Board found and ruled that the Commissioner met that burden.  
The evidence of record showed that Mr. Dotson moved from Florida to Massachusetts in August of 1998 and began a job in Cambridge.  Further, Mr. Dotson began the process of purchasing a $480,000 condominium in Boston by placing a deposit on that property in August of 1998.  He finalized the purchase of that condominium in September of 1998 and moved in at that time.  The Board therefore found that Mr. Dotson came to Massachusetts with an "intention to remain... for an indefinite time."  McMahon, 31 Mass. App. Ct. 504 at 505.  
In connection with these changes, Mr. Dotson resigned his employment in Florida, terminated his apartment lease in Florida and thereafter maintained no residence or employment in Florida.  The locus of Mr. Dotson's physical and business activities shifted from Florida to Massachusetts.  See Reiersen, 26 Mass. App. Ct. at 131.  Accordingly, the Board found and ruled that the Commissioner met her burden of proving that Mr. Dotson changed his domicile from Florida to Massachusetts.  
The appellant's primary argument was that Mr. Dotson never established a Massachusetts domicile because he never abandoned his Florida domicile.  In other words, he argued that he remained, at all relevant times, domiciled in Florida.  The Board found this argument to be unsupported by the evidence. Although there are many factors to be considered in determining the location of one's domicile, domicile requires at a minimum an "actual residence."  McMahon, 31 Mass. App. Ct. at 505.  A person can have a home in a place where he is not domiciled but he cannot be domiciled in a place where he has no home.  Following the termination of his lease in Boca Raton in September of 1998, Mr. Dotson no longer rented or owned a residence in Florida.  The Board therefore found and ruled that Mr. Dotson abandoned his Florida domicile and established a Massachusetts domicile.   
The appellant contended in the alternative that if Mr. Dotson did establish a Massachusetts domicile, he did so only for a brief period in 1998 and changed his domicile back to Florida before the receipt of the disputed income in 1999.  Because Mr. Dotson conceded for the purposes of this argument that he changed his domicile to Massachusetts in 1998, it was his burden to prove that he changed his domicile to Florida before he received the disputed income.  Mellon Nat'l Bank & Trust Co., 327 Mass. at 638.  The Board found and ruled that he did not meet that burden. 
Mr. Dotson claimed that he was no longer domiciled in Massachusetts by January of 1999, despite having a residence here, because he had no "intent" to remain here following his resignation from PlanetAll on November 8, 1998.  Rather, he asserted that his intent was to return to live in Florida, as evidenced by his longstanding ties to Florida, the fact that he had placed items in storage there, left one of his two cars there, and never changed his Florida voter's registration or driver's license.  
However, the Board found that the "appellant's continuing ties to Florida do not foreclose a finding of change of domicile: such change does not require that a taxpayer divest himself of all remaining links to the former place of abode, or stay away from that place entirely."  Horvitz v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 2002-252, 259 (citing Gordon v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1988-367, 375). Moreover, the Board found that Mr. Dotson's ties to Massachusetts were not severed on the date of his resignation.  Although Mr. Dotson tendered his resignation in November of 1998, there remained several loose ends to be tied in connection with his employment.  The evidence showed that Mr. Dotson continued to actively negotiate the terms of his separation from the company and that his separation agreement was not signed by both parties until January 14, 1999.  Even if Mr. Dotson intended to return to Florida following the termination of his employment with PlanetAll, he did not acquire a new residence in Florida until he closed on his home on March 10, 1999.  His "intent" to establish a new domicile did not "concur" with the fact of establishment of a new domicile until that date.  See Reierson, 26 Mass. App. Ct. at 125.  
Further, although Mr. Dotson took several trips to Florida or elsewhere between November of 1998 and early March of 1999, the record showed that he continued to reside at his Marlborough Street condominium until March of 1999 and his brief departures therefrom did not affect his domicile.  "Mere absences from home even for somewhat prolonged periods do not work a change of domicile."  McMahon, 31 Mass. App. Ct. at 506.   Accordingly, the Board found that Mr. Dotson remained domiciled in Massachusetts until March of 1999.  
Mr. Dotson exercised his stock options on January 22, 1999 and received $5,317,145.35 in income.  Because the Board found and ruled that he was domiciled in Massachusetts at that time, it therefore found and ruled that the disputed income was Massachusetts taxable income.





Accordingly, the Board issued a decision for the appellee in this appeal.

					 APPELLATE TAX BOARD

		  		  By:				_____	____						 Thomas W. Hammond, Jr., Chairman



A true copy,


Attest:		__________			
	         Clerk of the Board

 G.L. c. 62, § 1(f) defines resident as "any natural person domiciled in the Commonwealth."  
 Following the decisions by the Board in Destito v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1986-122, aff'd 23 Mass. App. Ct. 977 (1987) and Gersh v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1997-502, G.L. c. 62, 5A was amended, effective tax years beginning on or after January 1, 2003, to include as Massachusetts taxable income that income earned by a taxpayer while a Massachusetts resident, regardless of whether the taxpayer was a Massachusetts resident at the time the income was received.  
 At the hearing and in his post-hearing brief, the appellant emphasized the fact that it was his landlord's choice not to renew his apartment lease in Boca Raton, rather than his own choice.  However, there was no evidence in the record that following the termination of his lease, Mr. Dotson attempted to secure other housing in Florida.  Regardless of the circumstances surrounding Mr. Dotson's departure from that particular apartment, the evidence showed that after September of 1999, he no longer maintained a residence in Florida and had, in fact, left Florida to live near his new place of employment in Massachusetts.   Accordingly, the Board did not find the circumstances surrounding the termination of Mr. Dotson's lease to be probative evidence of his place of domicile during the period at issue in this appeal.

ATB 2009-572