STATE OF MINNESOTA

COUNTY OF POPE

Larry and Diane Zavadil,

Appellants, vs.

Commissioner of Revenue,

Appellee.

TAX COURT

REGULAR DMSION

FINDINGS OF FACT CONCLUSIONS OF LAW, AND ORDER FOR JUDGMENT

Docket No. 8433-R

Filed: March 18, 2015

This matter came on for trial before The Honorable Joanne H. Turner, Chief Judge of the

Minnesota Tax Court, on July 21-24, August 21-22, and September 22, 2014, regarding the

resident status of appellants Larry and Diane Zavadil for tax years 2005 and 2006.

Joseph A. Nilan and Joshua A. Dorothy, Gregerson, Rosow, Johnson & Nilan, Ltd.,

Minneapolis, Minnesota, represented appellants.

Sara L. Bruggeman and Tamar Gronvall, Assistant Minnesota Attorneys General,

represented appellee Commissioner of Revenue.

The Zavadils filed their 2005 Minnesota income tax return as part-year residents and their

2006 Minnesota income tax return as nonresidents, claiming that in November 2005 they became

Nevada residents. The Commissioner audited Mr. and Ms. Zavadils' 2005 and 2006 income tax

returns and in January 2012 assessed the Zavadils for additional Minnesota income tax, penalty,

and interest on the ground that they remained domiciled in Minnesota during both years.

Although Mr. and Ms. Zavadil filed an administrative appeal, the Commissioner affirmed her

original order. Mr. and Ms. Zavadil subsequently appealed to this court. We affirm the

Commissioner's order.

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Based upon all the files, records, and proceedings herein, the court now makes the

following:

FINDINGS OF FACT

1. Appellant Diane M. Zavadil was born and raised in Marshall, Minnesota. Tr. 335.

2. Appellant Larry Zavadil was born and raised in Glenwood, Minnesota. Tr. 862.

3. The Zavadils were married in 1970 and, in 1973, moved to Glenwood. Tr. 336-

37, 864. The Zavadils have three children: a daughter and two sons. Tr. 21, 339, 820-21.

Neither the Zavadils nor any of their children were students during the tax years at issue. During

the tax years at issue, the Zavadils' daughter lived in Houston, Texas; the Zavadils' sons lived in

Minnesota.

4. Ms. Zavadil is part of a large extended family, which gathers in Minnesota for a

week during the summer and again over the holidays. Tr. 613, 637.

American Solutions for Business; American Diversity Business Solutions

5. In 1981, Mr. Zavadil founded American Business Forms (now known as

American Solutions for Business), a Minnesota corporation that sells business and promotional

materials through more than 500 sales associates located throughout the country. Stip. ~ 4; Tr.

871-74.

6. American Solutions for Business established a banking relationship with

Glenwood State Bank, where Mr. Zavadil had been a customer since childhood. Tr. 442-43. In

1996, Mr. Zavadil became a director of the bank. Tr. 444-45; Stip. ~ 19. Mr. Zavadil personally

guaranteed loans from Glenwood State Bank to· American Solutions for Business Tr. Vol. VII,

50.

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7. In 1992, Ms. Zavadil founded American Minority Business Forms (now known as

American Diversity Business Solutions) as its sole shareholder. Stip. ~ 11. American Diversity

Business Solutions, also a Minnesota corporation, accommodates customers of American

Solutions for Business wishing (or needing) to do business with a minority- or female-owned

business. Tr. 345, 917-19.

Mr. Zavadil sells his interest in American Solutions for Business to an ESOP

8. In 1999, two employees of American Solutions for Business (and close friends of

Mr. Zavadil) died suddenly, and Mr. Zavadil realized that were he to pass away, Ms. Zavadil

would be forced to sell the company to pay estate tax. Tr. 907. None of the Zavadil children

were then interested in taking over the business. Tr. 907. The company had pursued a public

offering in the 1980s, but it was not particularly marketable. Tr. 906. A merger with another

company risked taking jobs away from Glenwood, which Mr. Zavadil was unwilling to do.

Tr. 906. Mr. Zavadil saw an employee stock ownership plan (ESOP) as the only remaining

option. Tr. 907.

9. In 2000, Mr. Zavadil sold his entire interest in American Solutions for Business to

the American Solutions for Business Employee Stock Ownership Plan for $28. 76 million dollars.

Stip. ~ 5; Ex. JI.

10. The ESOP financed its purchase of Mr. Zavadil's stock using a 20-year

promissory note payable to him, with a minimum required annual payment to Mr. Zavadil of

approximately $3.5 million, or about $300,000 per month. Stip. ~ 6; Ex. J2; Tr. 909.

11. In connection with the sale, Mr. Zavadil signed an employment agreement with

American Solutions for Business, under which he agreed to continue to serve as Chief Executive

Officer (albeit unpaid) "on a full-time basis" until the later of June 30, 2005, or full satisfaction

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of his loan to the ESOP. Ex. 1107, at 1. Although Mr. Zavadil's employment agreement allowed

him to terminate his employment on 30 days' written notice, Ex. 1107, no such notice was ever

given. Mr. Zavadil therefore remained an employee of American Solutions for Business.

The Zavadils invest in real estate

12. In 2000, Mr. Zavadil formed Zavadil Development, Inc., a Minnesota corporation.

Stip. ~ 17. The registered address of Zavadil Development is 31 East Minnesota A venue,

Glenwood-the address of American Solutions for Business. Stip. ~ 17. Zavadil Development

maintained accounts at Glenwood State Bank. Tr. 456; Stip. ~ 76.

13. Mr. Zavadil viewed Zavadil Development as a vehicle to "push the envelope" and

do longer, riskier, more costly projects that others would (or could) not. Tr. 881-82.

14. Zavadil Development acquired numerous properties in and around Glenwood as

potential sites for future development. Exs. 1108, 1109; Tr. 920-26. During the years at issue

here, Mr. Zavadil was negotiating with the City of Alexandria for annexation of 600 acres of

property on Lake Andrew, on which Zavadil Development hoped to build a mixed

commercial/residential development, and was working on the development of the fairgrounds in

Glenwood. Tr. 923-94, 927-28. In addition, Zavadil Development owned or had agreed to

purchase three properties in Nevada. Exs. 1108, 1109; Tr. 919-31.

15. In December 2000, the Zavadils formed Zavadil Limited Partnership, a Minnesota

limited partnership, as part of their overall estate plan. Ex. J6.

16. Zavadil Limited Partnership is a real estate investment company formed for estate

planning purposes. Stip. ~ 16; Tr. 519, 883. Since its formation, the partnership's primary

checking account has been located at Glenwood State Bank. Tr. 456.

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17. Originally, each of the Zavadils held both a 0.5% general partnership interest and

a 49.5% limited partnership interest. Ex. J6.

18. Between 2000 and 2006, Zavadil Limited Partnership acquired various properties

around the country, primarily (but not exclusively) for the use of the Zavadils and their children

or leased to American Solutions for Business. See Ex. Jl 10. At various times during the

partnership's ownership, the Zavadils or one or another of the Zavadils' children lived in the

properties rent-free. See Tr. 371, 843, 947; 374, 842-43; 66-68, 939; 939-40; Ex. J25.

19. In 2002, Zavadil Limited Partnership purported to lease a condominium m

downtown Minneapolis to the Zavadils, using a lease drafted by Mr. Zavadil. Ex. J23. Mr.

Zavadil signed the lease on behalf of the partnership, but there is no place in the written

document for the tenant to sign, and no signature of the tenant. Ex. J23.

20. Also in 2002, Zavadil Limited Partnership purported to lease a different

condominium to the Zavadils. Ex. J24. Mr. Zavadil signed the lease on behalf the partnership,

but there is no place in the written document for the tenant to sign and no signature of the tenant.

Ex. J24.

21. At least six of the properties owned by Zavadil Limited Partnership were leased to

American Solutions for Business, generating some $600,000 of annual income. Ex. Jl l O;

Tr. 931-42.

22. The Zavadils also acquired a variety of vehicles, including cars, trucks, boats, all-

terrain vehicles, jet-skis, and trailers. Stip. , 56. Some of the vehicles were titled in the name of

one of Mr. Zavadil's companies; others were titled in Mr. Zavadil's name. Stip., 56. Some

were used primarily by one of Mr. Zavadil's companies; others were used by the Zavadils or

their children. Stip. , 56.

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23. Mr. Zavadil used funds borrowed from American Solutions for Business to fund

his personal real estate activities. See Tr. 915-16. American Solutions for Business tracked Mr.

Zavadil's non-company-related expenditures-both company checks issued for non-company­

related items and non-company-related charges on Mr. Zavadil's corporate credit card-in a

separate "ledger" account on its books. See Zavadil v. CIR, T.C. Memo. 2013-222, at *2 (U.S.

Tax. Ct. Sept. 19, 2013).

The Zavadils consider Florida and build in Nevada

24. The youngest of the Zavadil children graduated from high school in 1998 and the

Zavadils became empty nesters. Tr. 950. By then, many of the Zavadils' friends were spending

winters elsewhere. Tr. 950. The Zavadils ~lso began to consider spending winters other than in

Minnesota. Tr. 392-93.

25. The Zavadils considered Phoenix as a winter home, but eventually decided

against it. Tr. 950-51. The Zavadils also considered Houston (where their only daughter lived)

as a winter home, but decided against it as well. Tr. 950-51.

26. A former customer of American Solutions for Business, who was living in

Florida, urged the Zavadils to visit him on Marco Island. Tr. 80-81. In 1999, the Zavadils

purchased the first of several properties on Marco Island. Tr. 82-85.

27. Over the next several years, the Zavadils spent considerable time in Florida. Mr.

Zavadil spent time fishing and golfing with friends. Tr. 83-84. Ms. Zavadil, however, found

Florida's summers too hot, Florida's "red tide" bothered her, and there was little to do. Tr. 394-

95. The Zavadil's children, in particular, did not care for Florida as a vacation destination. Tr.

28.

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28. In 2002, the Zavadils and their children began vacationing at Lake Tahoe. Tr. 28-

29, 395-96, 952-53. The family found Tahoe more to their liking than Florida as a vacation

destination, both for its opportunities for outdoor activities and for the nightlife in Stateline. Tr.

396, 839. After just the first trip, the Zavadil children voted for Lake Tahoe as a vacation

destination over Florida. Tr. 954-55. One of the Zavadils' sons described Lake Tahoe as one of

his "favorite places on earth." Tr. 32.

29. In May 2003, after several trips to Tahoe with the Zavadil children during both

winter and summer, Tr. 29, Mr. Zavadil purchased a residential lot on Lakeview Avenue in Elk

Point Country Club, a gated community in Zephyr Cove, Nevada. Stip. ~ 21; Ex. J9; Tr. 397,

125, 957. Despite its name, Elk Point Country Club has no golf course, tennis courts, or other

like amenities. Tr. 1148.

30. The Zephyr Cove property was then owned by John Briggs, a retired California

state senator who also owned the adjacent property.

31. Because houses in Zephyr Cove are constructed on the lot line, Senator Briggs did

not wish to sell to someone who would "flip" the property or rent it to others. Tr. 124, 398, 956.

The Zavadils assured Senator Briggs that they did not intend to rent the property out. Tr. 398.

32. Senator Briggs did not insist, as a condition of selling the property, that the

Zavadils reside in the property full-time year-round, only that the Zavadils not rent the property

out to others.

33. The Zavadils built a custom 4-bedroom, 5-bath house on the property,

overlooking Lake Tahoe. Stip. ~ 22. Built on three levels, the home included space for the

Zavadil family's sporting equipment, and (anticipating the couple's future needs) an elevator

serving all three floors. Tr. 399-400.

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34. To acquire the land and construct the property, the Zavadils established business

relationships with a real estate agent, mortgage broker, and contractor. Ms. Zavadil worked with

an interior designer to select furnishings and finishes for the home. Tr. 401-13. The Zavadils'

relationships with those individuals did not extend beyond the completion of construction.

35. A January 2006 mortgage on the Zephyr Cove property required the Zavadils to

use the property as their principal residence within 60 days of the execution of the mortgage and

for at least one year thereafter. Ex. Jl 1.

36. Although the Zavadils anticipated spending extended periods of time at the

Zephyr Cove property, they did not intend it to be their full-time residence.

37.

Stip. ~ 22.

38.

Construction of the house in Zephyr Cove was completed in early 2005.

Each of the Zavadil children used the house in Lake Tahoe frequently-

frequently enough to have assigned bedrooms and to leave their sporting equipment and personal

effects there. Tr. 53-55; 832-36.

39. In July 2004, the Zavadils leased a home on Heathwood Court on Marco Island

from Zavadil Limited Partnership. Stip. ~ 44; Ex. J25. With three bedrooms and four

bathrooms, the home on Heathwood Court was large enough to accommodate the Zavadils and

their children. Tr. 376-77, 949. The Zavadils remodeled the kitchen and bathrooms to their

liking, and Mr. Zavadil installed a boat lift suitable for a larger boat. Tr. 86. Although Mr.

Zavadil was by then constructing Ms. Zavadil's dream home on Lake Tahoe, Mr. Zavadil

discussed with his friends making the Heathwood property the Zavadils' "permanent home."

Tr. 86-87.

8

The Zavadils' residences in Glenwood, Minnesota

40. In June 2000, Mr. Zavadil leased a lakefront home at 19140 Halwood Road.

Ex. 114. Under the terms of the lease, which Mr. Zavadil drafted, Mr. Zavadil agreed to "use the

House as his permanent residence and homestead" through the term of the lease (June 1, 2000, to

June 1, 2005, plus extensions). Tr. 884; Ex. 114. Mr. Zavadil paid a $1,000 fee for the option to

purchase the property. Ex. 114. The lease lists "Zavadil Limited Partnership" as the lessor,

Ex. 114, although Zavadil Limited Partnership was not formed until December 2000.

41. The Zavadils moved into the property at 19140 Halwood Road. Tr. 347, 876.

Over time, the Zavadils extensively remodeled the house and added a garage, with office space

over the garage for Mr. Zavadil. Tr. 347. The Zavadils' investment in 19140 Halwood Road

would eventually total about $900,000. Tr. 887.

42. Zavadil Limited Partnership owned five vacant parcels (totaling 31 acres), also on

Halwood Road in Glenwood.

43. Starting in 2003, Mr. Zavadil built a 12,000-foot estate on the land, with five

bedrooms and eight bathrooms; a 2,000-square-foot guest house; and a seven-car garage. Ex.

J93; Tr. 897-98. Although no property on Lake Minnewashka had ever sold for more than $1

million, Tr. 887, the total cost of the project (with a street address of 19752 Halwood Road) was

approximately $6.6 million. Ex. J93; Tr. 897-98.

44. In developing the estate at 19752 Halwood Road, Mr. Zavadil sought to build a

high-end speculative house unlike anything else on Lake Minnewashka, rather than to build a

house for himself and Ms. Zavadil. Tr. 893.

45. To construct the property at 19752 Halwood Road in Glenwood, Mr. Zavadil

established working relationships with architects and contractors.

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46. The mortgage given by Zavadil Limited Partnership to Glenwood State Bank to

secure the construction loan on 19752 Halwood Road was the "Minnesota

agricultural/commercial real estate security instrument," which does not require that the

mortgagor use the property as a personal residence. Ex. J20.

The Zavadils insure 19752 Halwood Road in Glenwood

47. In July 2003, the Zavadils applied for the first in a series of insurance policies

on 19752 Halwood Road (which was then still under construction). Ex. J67. The applicants for

the policy were Zavadil Limited Partnership and the Zavadils individually. Ex. J67. The

application listed the occupation of the applicant as "CEO" and the employer of the applicant as

"American Business Forms." Ex. J67. According to the application, the planned occupancy of

the property was described as "primary," rather than "seasonal," "secondary," or

"vacant/unoccupied." Ex. J67.

48. Owners Insurance Company insured the property effective July 1, 2003. Ex. J68.

The Zavadils received a "mature homeowner discount" based on Mr. Zavadil's age. Ex. J68.

The policy was rated for "primary" occupancy. Ex. J68.

49. Through at least July l, 2009, Owners Insurance Company continued to insure the

property, always applying a "mature homeowner discount" using Mr. Zavadil's age and always

rating the policy for "primary" occupancy. Exs. J69-J76.

50. By representing that 19752 Halwood Road m Glenwood was their primary

residence, the Zavadils paid lower premiums.

51. Although the exterior landscaping at 19752 Halwood Road was not yet complete,

the Zavadils moved into the property sometime in 2005. Tr. 895. In June 2005, Mr. Zavadil

signed a written lease for 19752 Halwood Road for a period of 15 years, at a monthly rent of

10

$6,000. Ex. J18. Mr. Zavadil agreed to use the house "as his permanent residence and

homestead." Ex. J18. Mr. Zavadil signed the lease as both landlord and tenant. Ex. Jl8. The

Zavadils moved their furniture and other personal belongings from 19140 Halwood Road to

19752 Halwood Road. Tr. 1150-51.

The American Solutions for Business ESOP is refinanced

52. By 2004, Mr. Zavadil owed American Solutions for Business hundreds of

thousands of dollars for his personal and non-company-related expenses paid by American

Solutions for Business or charged to Mr. Zavadil' s company credit card. Those loans only grew

during 2005. See Zavadil, 2013 WL 5288948, at *5 (listing the monthly balance on Mr.

Zavadil's ledger account during 2004 and 2005).

53. The loans to Mr. Zavadil put American Solutions for Business in default under its

credit agreement with Wells Fargo. Ex. J66, at 56. The loans to Mr. Zavadil also deprived

American Solutions for Business of cash and working capital needed for its own operations. Tr.

Vol. VII, 55-56; Ex. J64.

54. In 2005, Mr. Zavadil resigned as trustee of the American Solutions for Business

ESOP, and BNC National Bank was chosen as the successor trustee. Ex. J60.

55. When BNC learned of Mr. Zavadil's large ledger account balance (that is, that

American Solutions for Business had effectively loaned millions of dollars to Mr. Zavadil), it

insisted that American Solutions for Business sever its financial ties with Mr. Zavadil. Tr.

Vol. VII, 55-56; Ex. J64.

56. Mr. Zavadil could not pay off his ledger balance unless the American Solutions

for Business ESOP first satisfied its promissory note to him. Tr. Vol. VII, 55-56.

11

57. In 2005, American Solutions for Business began pursuing refinancing of Mr.

Zavadil's promissory note. Tr. 766-67, 913; Ex. J61.

The Zavadils move to Nevada

58. At some point in time, Mr. Zavadil resigned from the Pope County Planning and

Zoning Commission. Tr. 974-75.

59. In November 2005, the Zavadils drove to the house in Zephyr Cove in a rented

movmg van. Tr. 966-67. In the van were family photos, some smaller pieces of furniture,

clothing, bedding, books, small kitchen appliances, and various other personal items. Tr. 966-68.

60. Once in Nevada, the Zavadils obtained Nevada driver's licenses, surrendering

their Minnesota licenses in the process. Ex. J32; Tr. 1121.

61. In November 2005, the Zavadils registered and insured their Dodge Durango in

Nevada. Exs. J33, J34, J35. The Zavadils' many other vehicles remained in Minnesota and

continued to be insured under policies written in Minnesota and issued by Minnesota insurance

agencies. Stip. ,, 55, 57-59. The insurance policy issued in February 2006 on Mr. Zavadil's

various watercraft gave 19752 Halwood Road in Glenwood as Mr. Zavadil's address. Ex. J37.

62. On November 29, 2005, Mr. Zavadil declared the Zephyr Cove property as his

homestead. Ex JlO.

63. Because the Zavadils could not receive mail directly at the house in Zephyr Cove,

they leased a post office box. Ex. J26; Stip. , 45. The Zavadils notified various banks and

financial institutions to change their address to their post office box in Zephyr Cove. Ex. J42.

64. On occasion, the Zavadils' post office box in Zephyr Cove would fill beyond

capacity. Tr. 969. Mr. Zavadil gave a key to the post office box to the Zephyr Cove branch of

Mailboxes Etc., a commercial packing and shipping business. Tr. 970. On Mr. Zavadil's

12

instructions, Mailboxes Etc. would retrieve the Zavadils' mail from the Zephyr Cove post office

and forward it to Mr. Zavadil's long-time personal assistant at American Solutions for Business

in Glenwood.

65. The Zavadils registered to vote in Nevada. Ex. J28. In January 2006, the

Zavadils asked to be removed from the voter registration list in Pope County. Ex. J29.

66. The Zavadils voted in person in the Nevada primary election in August 2006 and

voted early in the November 2006 Nevada general election. Stip. if 51; Ex. J31.

67. The Zavadils became members of Our Lady of Tahoe Catholic Church, indicating

that they were "full time Tahoe residents." Ex. J39. Ms. Zavadil volunteered to teach catechism

classes but only as a substitute, "because [she] wasn't always going to be there." Tr. 425.

68. In January 2006, Mr. Zavadil asked the parishes in Glenwood and Alexandria to

remove the Zavadils from the respective parish lists, explaining that "the state of Minnesota laws

are quite specific related to membership for nonresidents." Ex. J40. When in Nevada, the

Zavadils attended Our Lady of Tahoe; when in Minnesota, the Zavadils attended church in

Minnesota. Stip. if 62.

69. The Zavadilsjoined the local community center in Nevada. Ex. J41.

70. Ms. Zavadil obtained a card from the local library in Nevada. Tr. 1018.

71. The Zavadils opened checking accounts in Nevada with Wells Fargo. Stip. if 77;

Tr. 987.

The Zavadils' ongoing ties to Minnesota

72. After November 2005, the Zavadils continued to see their Minnesota dentist and

physician, and continued to use the services of their Minnesota accountant and attorneys.

Stip. ilil 67-70.

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73. After November 2005, the Zavadils continued to lease 19752 Halwood Road in

Glenwood. Tr. 900.

74. Effective December 15, 2005, the Zavadils were no longer named insureds

on 19752 Halwood Road in Glenwood. Ex. J71. The named insured, "ZLP Partnership,"

continued to receive a "Mature Homeowner" discount based on Mr. Zavadil's age; the property

continued to be insured as a "primary residence." Exs. J71, J73, J74, 175, 176. The Zavadils

continued to insure under the policy pages of scheduled personal property (such as antiques and

jewelry) in which Zavadil Limited Partnership had no apparent interest. See, e.g., Ex. J71.

75. In December 2005, Mr. Zavadil wrote to the associates of American Solutions for

Business that he had suggested to Ms. Zavadil "that we should homestead" the house in Nevada

"and become Nevada residents." Ex. J3. Mr. Zavadil indicated, however, that he "will still be

spending the same amount of time in the office." Ex. J3.

76. Mr. Zavadil remained a Director of Glenwood State Bank. Tr. 880.

77. Mr. Zavadil had no personal assistant in Nevada. Mr. Zavadil continued to use

his personal assistant at American Solutions for Business to manage his calendar, sort his mail,

process his correspondence, and set up his appointments. Tr. 988-90, 1130; Tr. Vol. VII 13-25.

78. Mail for Zavadil Development and Zavadil Limited Partnership continued to be

delivered to the Glenwood Post Office, where it was collected by employees of American

Solutions for Business and delivered to Mr. Zavadil's personal assistant. Stip. ~ 47. Rather than

forward Mr. Zavadil's mail to him in Nevada, Mr. Zavadil's assistant held the mail for Mr.

Zavadil to pick up when he was in Minnesota. Stip. ~ 4 7.

79. When the Zavadils' accountant had correspondence for the Zavadils, she typically

left it with Mr. Zavadil's personal assistant at American Solutions for Business. Tr. 522-23.

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80. The Zavadils obtained nonresident fishing licenses in Minnesota in 2006.

Ex. J46; Tr. 275.

Ms. Zavadil sells American Diversity Business Solutions

81. Effective December 31, 2005, Ms. Zavadil assigned her general partnership

interest in Zavadil Limited Partnership to Mr. Zavadil, and formally resigned as a general

partner. Ex. J8.

82. Effective January 1, 2006, Ms. Zavadil sold her stock in American Diversity

Business Solutions to her three children and two others. Ex. J 5. Payments on the stock were to

be made to 19752 Halwood Road in Glenwood. Ex. J5. The stock purchase agreement included

a Minnesota choice of law provision and a Minnesota forum selection clause. Ex. J5.

83. As part of the sale, American Diversity Business Solutions redeemed a portion of

Ms. Zavadil's shares for $1.4 million, paid over time at the rate of $15,000 per month. Tr. 1166.

84. After the sale, Ms. Zavadil remained Chairman of the Board and Chief Executive

Officer of American Diversity Business Solutions. Tr. 1167. During 2006, Ms. Zavadil worked

for American Diversity Business Solutions in Minnesota for all of 120 days and parts of 13

others. Appellants' Responses Appellee' s First Set Interrogs. Requests Production

Documents 20-24.

85. While she was in Minnesota, Ms. Zavadil occasionally also worked for a friend's

interior design studio, for which she was paid less than $1,000 in 2006. Ex. J44.

The ESOP is refinanced in 2006

86. In July 2006, the American Solutions for Business ESOP refinanced the

promissory note to Mr. Zavadil, resulting in a payment to Mr. Zavadil of $18,628,385. Stip. ~ 6;

Ex. J44, at 1138; Ex. J66, at 33.

15

87. Glenwood State Bank provided part of the funds required to refinance the loan

from Mr. Zavadil to the American Solutions for Business ESOP. Tr. 1160-63. Mr. Zavadil, in

turn, personally guaranteed the loan from Glenwood State Bank. Tr. 1160-63.

88. As part of the refinancing, Mr. Zavadil repaid the $4.26 million outstanding

balance on his ongoing ledger account with American Solutions for Business. Tr. 1160-63;

Ex. 165; Ex. 166. At the same time, Mr. Zavadil used an $8 million certificate of deposit to

personally secure a separate loan from Glenwood State Bank to American Solutions for

Business. Tr. 1160-63; Ex. 164.

89. The refinancing eliminated Mr. Zavadil as an authorized signer on the company's

checking account and eliminated the ability of the company to issue manual checks, except in an

emergency. Ex. 165; Ex. 166, at 33.

90. As part of the ESOP refinancing, American Solutions for Business obtained a line

of credit through Wells Fargo Bank. Ex. 166. The Credit and Security Agreement between

Wells Fargo and American Solutions for Business allowed Wells Fargo to "demand immediate

payment" of all amounts outstanding, should Mr. Zavadil "cease to actively manage [American

Solutions for Business]'s day-to-day business activities." Ex. 166.

91. After the refinancing, Mr. Zavadil remained CEO of American Solutions for

Business.

The Zavadils sell 19140 Halwood Road in Glenwood

92. In October 2006, anticipating that 19140 Halwood Road in Glenwood (the house

on Lake Minnewashka from which the Zavadils had moved in June 2005) would be sold at a

loss, Zavadil Limited Partnership transferred the property to Mr. Zavadil individually by quit

claim deed. Ex. J 15. Although Mr. Zavadil typically transferred properties being sold at a loss

16

to Zavadil Development, the Zavadils had personally guaranteed a mortgage on the property and

Ms. Zavadil had no ownership interest in Zavadil Development. Tr. 887.

93. The quit claim deed asserted that the total consideration for the transfer of 19140

Halwood Road was $500.00 or less. Ex. 115. By asserting that the total consideration for the

transfer was $500.00 or less, the partnership paid a deed tax of only $1.65. Ex. 115.

94. The quit claim deed by which Zavadil Limited Partnership transferred 19140

Halwood Road to Mr. Zavadil called for tax statements on the property to be sent to Mr. Zavadil

in Glenwood. Ex. 115.

95. By April 2007, the Zavadils had received an offer from a third party to purchase

the property for $1.2 million. Tr. 889.

96. In April 2007, the Zavadils transferred 19140 Halwood Road back to Zavadil

Limited Partnership, this time by warranty deed. Ex. 116. The total consideration for the

transfer was claimed to be $500.00 or less, on which the deed tax was only $1.65. Ex. 115.

97. The deed tax paid on the May 2007 sale to the third party was $3,960. Ex. 117.

98. The attorney who prepared the October 2006 and April 2007 deeds believed that

Mr. Zavadil was the sole owner of Zavadil Limited Partnership, and was unaware that the

Zavadils' children owned a portion of the partnership. Tr. Vol. VII, 99-101.

The Zavadils list 19752 Halwood Road in Glenwood for sale

99. In December 2006, with 19752 Halwood Road in Glenwood ready for sale,

Zavadil Limited Partnership transferred the property to Mr. Zavadil individually by quit claim

deed. Ex. J21. Mr. Zavadil anticipated that 19752 Halwood Road (like 19140 Halwood Road)

would be sold, if at all, at a significant loss. Tr. 899. By then, Ms. Zavadil was no longer a

partner in Zavadil Limited Partnership, having transferred her limited partnership interest to the

17

Zavadil children and her general partnership interest to Mr. Zavadil, Ex. J8, but Ms. Zavadil had

personally guaranteed the loan to construct the property, Tr. 899.

100. The quit claim deed asserted that the total consideration for the transfer of 19752

Halwood Road was $500.00 or less. Ex. J2 l. By asserting that the total consideration for the

transfer was $500.00 or less, the partnership paid a deed tax of only $1.65. Ex. J15.

101. The quit claim deed by which Zavadil Limited Partnership transferred 19752

Halwood Road to Mr. Zavadil called for tax statements on the property to be sent to Mr. Zavadil

in Glenwood. Ex. J2 l.

102. Although construction of 19752 Halwood Road in Glenwood was complete

in 2006, the Zavadils reasonably waited until the spring of 2007 to list the property for sale.

103. In March 2007, the Zavadils listed 19752 Halwood Road and its

accompanying 31 acres for sale for $8.9 million. Ex. J93.

104. In setting the listing price, Mr. Zavadil started with his investment in the property

($6.6 million) and added enough to ensure that, even at a 10% discount, the selling price would

be enough to cover his basis in the property. Tr. 903.

105. The Zavadils signed the required Seller's Property Disclosure Statement as the

sellers. Ex. J94. On the disclosure statement, the Zavadils indicated that they had "occupied this

home continuously for the past 12 months." Ex. J94.

106. Although the Zavadils made a good faith effort to sell the property, 19752

Halwood Road did not sell, and the Zavadils could not afford to reduce the price by enough to

enable the property to be sold. Tr. 903-04. The property was taken off the market.

107. In May 2007, the Zavadils transferred 19752 Halwood Road back to Zavadil

Limited Partnership by quit claim deed, again paying a deed tax of only $1.65. Ex. J22.

18

The Zavadils' time spent in Minnesota in 2006

108. During 2005 and 2006, Mr. Zavadil continued to actively manage the businesses

of Zavadil Development and Zavadil Limited Partnership, and to be employed by American

Solutions for Business. During 2005 and 2006, Ms. Zavadil continued as CEO of American

Diversity Business Solutions.

109. During 2006, Mr. Zavadil spent at least 182 full or partial days in Minnesota

and 110 full or partial days in Nevada. Stip. ~ 73.

110. During 2006, Ms. Zavadil spent at least 152 full days and 28 partial days in

Minnesota and 118 full or partial days in Nevada. Stip. ~73.

American Solutions for Business suffers; the Zavadils return to Minnesota

111. American Solutions for Business never made a profit on what it sold: after

discounts to its customers, the company's revenues were only enough to cover its costs. Tr. 878.

To the extent American Solutions for Business made a profit, it did so based on the discounts it

received from paying its vendors early. Tr. 878, 471.

112. During the mid-2000s, the installation of a new computer system caused delays in

processing invoices, meaning that the company did not receive discounts from its vendors.

Tr. 42-43.

113. Once Mr. Zavadil turned over day-to-day management of the company to others,

the discounts that the company's customers had come to expect were no longer offered. Tr. 707-

08.

114. Many of the company's sales associates complained about the company's new,

more corporate, attitude, and threatened to leave. Tr. 41-42.

19

115. The recession cost the company 30% of its business. Tr. 1009-10. Wells Fargo

reduced the company's credit line by $6.5 million. Tr. 1010.

116. In 2007, the Zavadils listed the Nevada home for sale. Stip. ~ 26. Ms. Zavadil

was "devastated" to leave the Nevada home, feeling that she and Mr. Zavadil "had let down"

their children. Tr. 432.

117. In 2008, Mr. Zavadil resumed day-to-day management of American Solutions for

Business. Ex. J4. The Zavadils moved back to Minnesota from Nevada, bringing with them

their personal belongings. Stip. ~ 84; Tr. 847, 1007-08. To save the company, Mr. Zavadil was

forced to seek capital from private investors. Tr. 709-11.

118. Ms. Zavadil canceled the stock purchase agreement by which she had sold her

interest in American Diversity and retook the reins of the company. Tr. 1169-70.

The Zavadils' income tax filings

119. The Zavadils filed their 2005 and 2006 federal income tax returns using their

Nevada address. Exs. 43, 44.

120. The Zavadils filed their 2005 Minnesota income tax return as part-year residents,

claiming to have been Minnesota residents from January 1 to October 31, 2005, and apportioned

their 2005 income between Minnesota and elsewhere. Ex. 43, at Sch. MlNR.

121. The Zavadils filed their 2006 Minnesota income tax return as nonresidents,

claiming to have been Nevada residents for the entire tax year, and apportioned their 2006

income between Minnesota and elsewhere. Ex. 44, at Sch. MlNR.

122. The Zavadils did not report the proceeds from refinancing the ESOP promissory

note on their 2006 Minnesota income tax return as Minnesota-source income. See Ex. J44,

20

at Sch. MlNR. As a result, although the Zavadils reported a federal adjusted gross income of

more than $17,000,000, only $1.3 million was attributed to Minnesota. Ex. J44, at Sch. MINR.

123. In April 2010, the Minnesota Commissioner of Revenue assessed the

Zavadils $1,375,990 in additional Minnesota income taxes, plus penalty and interest, on the

ground that the Zavadils were Minnesota residents for all of2005 and 2006. Ex. J52.

124. The Zavadils administratively appealed the Commissioner's order, which was

affirmed in January 2012. Exs. J53, J46.

125. The Zavadils timely appealed to this court. Ex. J45.

126. The Zavadils failed to overcome, by a preponderance of the evidence, the

presumption that they remained domiciled in Minnesota during 2005 and 2006.

CONCLUSIONS OF LAW

Larry and Diane M. Zavadil were residents of Minnesota during all of2005 and 2006.

ORDER FOR JUDGMENT

The January 11 and 23, 2012 orders of the Commissioner are affirmed in their entirety.

IT IS SO ORDERED. THIS IS A FINAL ORDER. A STAY OF 15 DAYS IS HEREBY

ORDERED. LET JUDGMENT BE ENTERED ACCORDINGLY.

BY THE COURT:

~~ INNESOTA COURT

DATED: March 18, 2015

21

MEMORANDUM

Appellants Larry and Diane M. Zavadil filed their 2005 Minnesota state income tax

return as part-year residents and their 2006 Minnesota state income tax return as nonresidents. In

2009, the Commissioner audited Mr. and Ms. Zavadils' 2005 and 2006 individual income tax

returns, concluding that they remained domiciled in Minnesota throughout both years. Ex. J48;

Ex. J52. Although Mr. and Ms. Zavadil filed an administrative appeal, Ex. J53, the

Commissioner affirmed her earlier order, Ex. J55. Mr. and Ms. Zavadil timely appealed the

latter order to this court. Not. Appeal (Mar. 12, 2012). We affirm the Commissioner's order.

I. BACKGROUND

Both Mr. and Ms. Zavadil were born and raised in Minnesota-Mr. Zavadil in

Glenwood, Minnesota, Stip. 1 I; Tr. 862, and Ms. Zavadil in Marshall, Minnesota, Tr. 335.

Married since 1970, the Zavadils have lived in Glenwood since 1973, where they raised three

children (Jessica, Justin, and Joshua). Tr. 336-37, 338-39.

In 1981, Mr. Zavadil founded American Business Forms, Inc., (known here as American

Solutions for Business) in Glenwood. Stip. 1 4; Tr. 867-68. American Solutions for Business

sells business and promotional materials through more than 500 sales associates located around

the country. Stip. 1 4. Until 2000, Mr. Zavadil was the sole shareholder of American Solutions

for Business. In 1992, Ms. Zavadil founded American Minority Business Forms (now known as

American Diversity Business Solutions), to accommodate customers of American Solutions for

Business wishing (or needing) to do business with a minority- or female-owned business.

Tr. 345, 917-19. Until 2006, Ms. Zavadil was its sole shareholder. Stip. 112.

In 1998, with the Zavadils' youngest child graduating from high school, the Zavadils

became empty nesters. Tr. 950. Many of the Zavadils' friends were, by then, spending the

22

winters elsewhere, Tr. 950, and Ms. Zavadil "was tired of the frigid, frigid cold" of Minnesota's

winters, Tr. 392. The Zavadils began to consider finding a place other than Minnesota in which

to spend the winter. Tr. 392-93. The Zavadils considered Phoenix, because many people from

Minnesota spend the winters there, but discarded it as "a very hot, dry place" good for golfers,

but not for them. Tr. 950-51. The Zavadils also considered Houston as a winter home (because

the Zavadils' only daughter lived there), but Houston afforded them no opportunity to live on the

water. Tr. 950-51.

A former customer of American Solutions for Business then living in Florida urged the

Zavadils to visit him on Marco Island. Tr. 80-81. That visit led to the Zavadils' first purchase of

property on Marco Island in 1999. Tr. 82-85. Over the next several years, Mr. Zavadil spent

time fishing and golfing with friends on Marco Island. Tr. 83-84. But eventually the Zavadils

decided against Florida. Although Ms. Zavadil enjoyed Florida's winters, she found Florida's

summers too hot. Tr. 394. The Zavadils found themselves eating dinner at 4:30 in the afternoon

because ''everybody was a little old," and (although Mr. Zavadil fished and golfed) there was

little for Ms. Zavadil or their children to do. Tr. 394-95. Even walking on the beach proved

difficult for Ms. Zavadil: unless it was early in the morning, the temperature was too hot, and

the red tide affected her. Tr. 394.

In 1999, two American Solutions for Business salesmen (and close friends of Mr.

Zavadil) died suddenly, and it dawned on Mr. Zavadil that were he to pass away, Ms. Zavadil

would be forced to sell the company to pay estate tax. Tr. 907. All of the Zavadil children were

pursuing other careers and not interested in taking over the business. Tr. 907. The company had

pursued a public offering in the 1980s, but found the company not particularly marketable.

Tr. 906. A merger with another company risked taking jobs away from Glenwood, something

23

Mr. Zavadil was unwilling to do. Tr. 906 (Mr. Zavadil testifying that a merger "was not really a

positive solution or option for the city of Glenwood because of our jobs and the buildings we

occupied and the benefit that our small community received from that"). That left an employee

stock ownership plan (ESOP) as "really [] the only option left." Tr. 907.

In 2000, Mr. Zavadil sold his entire interest in American Solutions for Business to the

American Solutions for Business Employee Stock Ownership Plan for $28, 760,000. Stip. if 5;

Ex. Jl. Mr. Zavadil personally financed the purchase through a 20-year promissory note, which

paid him approximately $300,000 per month. Stip. if 6; Ex. J2. In conjunction with the sale, Mr.

Zavadil signed an employment agreement with American Solutions for Business under which he

agreed to continue to serve as (unpaid) Chief Executive Officer "on a full-time basis" until the

later of June 30, 2005, or full satisfaction of his loan to the ESOP. Ex. Jl07, at 1. Day-to-day

management of the company was handled by an executive management committee composed of

the chief operating officer, the vice-president of finance, an outside consultant, outside counsel, 1

and Mr. Zavadil. Tr. 911-12. Mr. Zavadil focused on recruiting and working with salespeople in

the field. Tr. 912.

Using the proceeds of the sale of American Solutions for Business, the Zavadils began to

invest heavily in real estate. In January 2000, Mr. Zavadil incorporated Zavadil Development,

Inc., a Minnesota corporation with its registered address at the headquarters of American

Solutions for Business. Stip. if 17. Mr. Zavadil viewed Zavadil Development as "a company or

vehicle that [he] could use to push the envelope, do the projects that nobody else talked or really

talked about, but never really entered into or tried to do." Tr. 881-82. Indeed, "because of what

American Solutions for Business' outside counsel, Joseph Nilan, represented the Zavadils in this matter.

24

[Mr. Zavadil] was going to do in selling [American Solutions for Business to] the ESOP and

having the cash flow to do it," Mr. Zavadil felt he "could make a difference and change things"

with "longer, high-dollar, riskier [real estate] projects." Tr. 882. Over the next five or six years,

Zavadil Development acquired numerous properties in and around Glenwood as potential sites

for future development. See Exs. 1108, 1109. For example, Zavadil Development acquired

property outside Glenwood as a potential industrial park, Tr. 920; four lots on Lake Minnewaska

as a potential site for residential development, Tr. 920-21; and acreage on Maple Lake in Frieda

as a potential site for a townhome or apartment project, Tr. 922-23. Zavadil Development also

acquired 600 acres on Lake Andrew for a mixed commercial/residential area near the City of

Alexandria. Tr. 923-24. ·In addition, Zavadil Development purchased two properties in Nevada

and a rental property in Stadium Village, near the University of Minnesota. Tr. 924-26.

In June 2000, Mr. Zavadil leased a lakefront home at 19140 Halwood Road. Ex. 114.2

Under the terms of the lease, which Mr. Zavadil drafted, Mr. Zavadil agreed to "use the House as

his permanent residence and homestead" through the term of the lease (June 1, 2000, to

June 1, 2005, plus extensions). Tr. 884, Ex. J14. Mr. Zavadil paid a $1,000 fee for the option to

purchase the property. Ex. J14. Over time, the Zavadils extensively remodeled the house and

added a garage, with office space over the garage for Mr. Zavadil. Tr. 347.

In December 2000, the Zavadils formed Zavadil Limited Partnership, a Minnesota

limited partnership, as part of their overall estate plan. Ex. J6; Tr. 883. Originally, each of the

Zavadils held both a 0.5% general partnership interest and a 49.5% limited partnership interest.

2 The lease is nominally between Mr. Zavadil and Zavadil Limited Partnership, although Zavadil Limited Partnership was not actually formed until December 2000. See Ex. J6.

25

Ex. 16.3 Between 2000 and 2002, Zavadil Limited Partnership acquired various properties

around the country, primarily for the use of the Zavadils and their children or leased to American

Solutions for Business. See Exs. 1110 (list of properties). For example, the partnership

purchased a furnished two-bedroom condominium on South Second Street in downtown

Minneapolis, which it then leased to the Zavadils. Ex. 123. At various times during the

partnership's ownership, one or another of the Zavadils' children lived in the unit rent-free. See

Tr. 371, 843, 947. The partnership also purchased a two-bedroom condominium in the Northstar

Building on Portland A venue in downtown Minneapolis, which it also leased to the Zavadils.

Ex. 124. At various times, one or another of the Zavadils' children lived in the unit rent-free.

Tr. 374, 842-43. The partnership also purchased a home in Texas for the Zavadils' daughter and

her family, Ex. 1110; Tr. 66-68, 939, and a single-family residence on Lake Calhoun in

Minneapolis for one of the Zavadils' sons and his wife, Ex. Jl 10; Tr. 939-40. In 2004, the

partnership leased property on Marco Island to Mr. and Ms. Zavadil. Ex. 125. In addition, at

least six of the properties owned by the partnership were leased to American Solutions for

Business. See Exs. 163, Jl 10; Tr. 931-42.

The Zavadils also acquired a variety of vehicles, including cars, trucks, boats, all-terrain

vehicles, jet-skis, and trailers. Stip. , 56. Some of those vehicles were titled in the name of one

of Mr. Zavadil's companies; others were titled in Mr. Zavadil's name. Stip., 56. Some were

used primarily by one of Mr. Zavadil's companies; others were used by the Zavadils or their

children. Stip. , 56.

3 On December 31, 2002, the Zavadils assigned their limited partnership interests in Zavadil Limited Partnership to their three children in equal shares. Stip., 14; Ex. 17. After this assignment, Zavadil Limited Partnership had two general partners (Mr. and Ms. Zavadil, each with a 0.5% interest) and three limited partners (the three Zavadil children, each with a 33% interest). Stip., 14; Ex. 17.

26

At the suggestion of a friend, in 2002 the Zavadils and their children vacationed in Lake

Tahoe. Tr. 395-96, 952-53. The family found Tahoe more to their liking as a vacation

destination than Florida, particularly for its many outdoor activities and its nightlife. Tr. 396, ·

829. In fact, after just one visit, the family voted for Lake Tahoe over Florida. Tr. 954-55, 830-

31.

In May 2003, after several trips to Tahoe in both winter and summer, Mr. Zavadil

purchased a residential lot on Lakeview A venue in Elk Point Country Club, a gated community

in Zephyr Cove, Nevada, on which there was a partially-constructed house. Stip. if 21; Ex. J9;

Tr. 397, 125, 957. The property was then owned by John Briggs, a retired California state

senator, who also owned the adjacent property. Tr. 398. Senator Briggs did not wish to sell to

someone who would, in turn, rent the property to others or just "flip it." Tr. 398, 956. The

Zavadils, for their part, did not intend to rent the property to others. Tr. 398.

Over the course of the next two years, the Zavadils built a custom 4-bedroom, 5-bath

house on the property overlooking Lake Tahoe. Stip. if 22. The home, built on three levels,

included space for the Zavadils' sporting equipment, and (anticipating the couple's potential

future medical needs) an elevator serving all three floors. Tr. 399-400. Ms. Zavadil worked with

an interior designer to select furnishings and finishes for the home. Tr. 401-13. Construction of

the house in Zephyr Cove was completed in early 2005. Stip. ~ 22. Thereafter, the Zavadil

children made frequent use of the property, sometimes with friends-so much so that each had

assigned bedrooms, and left sporting equipment and personal effects there. Tr. 53-55, 832-34,

836.

During the same period, Zavadil Limited Partnership owned five vacant parcels

totaling 31 acres on Halwood Road in Glenwood. Starting in 2003, Mr. Zavadil built an estate

27

on the land, including a 12,000-square-foot house with five bedrooms and eight bathrooms,

a 2,000-square-foot guest house, and a seven-car garage at a total cost of approximately $6.6

million. See J93; Tr. 897-98. In developing the property, Mr. Zavadil testified that he "was

trying to do a high-end spec house that nobody else had ever done," rather than build a house for

himself and Ms. Zavadil. Tr. 893. Indeed, Ms. Zavadil wanted to build a smaller house on the

property, or build an addition to the house at 19140 Halwood. Tr. 892-94.

In July 2003, the Zavadils applied for the first in a series of insurance policies on the new

Halwood Road property. Ex. J67. The applicants for the policy were listed as Zavadil Limited

Partnership and the Zavadils individually, but the application listed the occupation of the

applicant as "CEO" and the employer of the applicant as "American Business Forms." Ex. J67.

The planned occupancy of the property was described as "primary," rather than "seasonal,"

"secondary," or "vacant/unoccupied." Ex. J67. Effective July 1, 2003, Owners Insurance

Company insured the property, with a "mature homeowner discount" based on Mr. Zavadil's

age. Ex. J68. The policy was rated for "primary" occupancy. Ex. J68. Through at least

July 1, 2009, Owners Insurance Company continued to insure the property, always applying a

"mature homeowner discount" using Mr. Zavadil's age and always rating the policy for

"primary" occupancy. Exs. J69, J70, J71, J72, J73, J74, 175, 176.4

In July 2004, the Zavadils began leasing a home on Heathwood Court on Marco Island

from Zavadil Limited Partnership. Stip. ~ 44; Ex. 125. With three bedrooms and four

bathrooms, the home on Heathwood Court was large enough to accommodate the Zavadils and

their children. Tr. 376-77, 949. The Zavadils remodeled the kitchen and bathrooms to their

4 In contrast, there is no evidence in this record that the Zavadils represented to their insurer that the Zephyr Cove home would be their primary residence.

28

liking, and Mr. Zavadil installed a boat lift suitable for a larger boat. Tr. 86. Mr. Zavadil

discussed with his friends retiring and "mak[ing] the Heathwood property their permanent

home." Tr. 86-87.

The Zavadils moved from 19140 Halwood Road to 19752 Halwood Road sometime

in 2005. Tr. 895. In June 2005, Mr. Zavadil signed a written lease for 19752 Halwood Road for

a period of 15 years, at a monthly rent of $6,000. Ex. J18. Under the terms of the lease, Mr.

Zavadil agreed to "use the House as his permanent residence and homestead." Ex. J18. Mr.

Zavadil signed the lease as both landlord and tenant. Ex. J18. The Zavadils moved their

furniture and other personal belongings from 19140 Halwood Road to 19752 Halwood Road.

Tr. 1150-51.

American Solutions for Business tracked Mr. Zavadil's non-company-related

expenditures-both company checks issued for non-company-related items and non-company­

related charges on Mr. Zavadil's corporate credit card-in a separate "ledger" account on its

books. See Zavadil v. CIR, No. 17403-10, 2013 WL 5288948, at *2 (U.S. Tax Ct. Sept. 19,

2013). By 2004, Mr. Zavadil owed American Solutions for Business hundreds of thousands of

dollars for his personal and non-ASB-expenses paid for by ASB or charged to Mr. Zavadil's

ASB credit card. See Zavadi/, 2013 WL 5288948, at *2 (listing the monthly balance in Mr.

Zavadil's ledger account during 2004 and 2005). Those loans only grew during 2005. Id

The loans to Mr. Zavadil put ASB in default under its credit agreement with Wells Fargo.

Ex. J66, at 56. Mr. Zavadil resigned as trustee of the ESOP and BNC National Bank was chosen

as the successor trustee. J60 (June 30, 2005 Action in Writing appointing BNC National Bank as

successor Trustee), J59 (Minutes of Aug. 2005 Executive Meeting, noting American Solutions

for Business' agreement to hire BNC National Bank). BNC National Bank soon learned of Mr.

29

Zavadil' s large ledger account balance, that is, that American Solutions for Business had

effectively loaned millions of dollars to Mr. Zavadil, siphoning off cash and working capital

needed for American Solutions for Business' own operations. BNC insisted that American

Solutions for Business sever its financial ties with Mr. Zavadil. Tr. Vol. VII, 55-56; Ex. J64

(minutes of Mar. 14, 2006 special Board of Directors' meeting resolving that among the benefits

of refinancing the ESOP debt were "that we will no longer have a potential financial tie between

Larry Zavadil' s personal finances and the company finances" and that refinancing "will also

eliminate any ledger balances going forward in the future with Larry Zavadil").

Mr. Zavadil, however, could not afford to payoff his ledger balance (the loans to him

from American Solutions for Business) unless the ESOP first satisfied its promissory note to

him. Tr. Vol. VII, 55-56. And so, in 2005, American Solutions for Business began pursuing

refinancing of the ESOP's promissory note to Mr. Zavadil. Tr. 766-67, 913; Ex. J61 (Minutes of

Dec. 6-7, 2005 Executive Meeting reviewing Board of Directors discussion concerning ESOP

refinancing).

In November 2005, the Zavadils rented a moving van and drove to the house in Zephyr

Cove. Tr. 966-67. In the van were family photos, some smaller pieces of furniture, clothing,

bedding, books, small kitchen appliances, and various other personal items. Tr. 966-68. Once in

Nevada, the Zavadils obtained Nevada driver's licenses, Ex. J32, surrendering their Minnesota

licenses in the process, Tr. 1121. In November 2005, the Zavadils registered their Dodge

Durango in Nevada and obtained Nevada auto insurance on the vehicle. Exs. J33, J34, J35. The

Zavadils' other vehicles remained in Minnesota and insured in Minnesota. Stip. ~ 55. On

November 29, 2005, Mr. Zavadil declared the Zephyr Cove property as his homestead. Ex. JIO

30

(Mr. Zavadil declaring that the property "is my principal dwelling and I actually reside in this

property" on the date that the Declaration was recorded).

In December 2005, Mr. Zavadil wrote to the associates of American Solutions for

Business that he had suggested to Ms. Zavadil "that we should homestead" their house in Nevada

"and become Nevada residents." Ex. J3. Mr. Zavadil assured associates that he would "still be

spending the same amount of time in the office" after the move. Ex. J3. Effective December 31,

2005, Ms. Zavadil assigned her general partnership interest in Zavadil Limited Partnership to Mr.

Zavadil, and formally resigned as a general partner of Zavadil Limited Partnership. Ex. J8.

Because the Zavadils could not receive mail directly at the house in Zephyr Cove,

Ex. 126; Stip. ~ 45, they leased a post office box, Ex. J27; Stip. 46; Tr. 969. Because of the

volume of mail the Zavadils received, however, even the largest available post office box quickly

filled whenever the Zavadils were away. Tr. 969. Mr. Zavadil therefore gave the post office box

key to Mailboxes Etc., which periodically collected the Zavadils' mail and either held it for the

Zavadils' return or forwarded it to Mr. Zavadils' long-time secretary at American Solutions for

Business. Tr. 970.

The Zavadils registered to vote in Nevada. Ex. J28. In January 2006, the Zavadils asked

to be removed from the voter registration list in Pope County. Ex. J29. The Zavadils voted in

the 2006 primary at their polling place in Nevada, and early-voted in Nevada in the 2006 general

election. Ex. J31. Mr. Zavadil voted at his polling place in Nevada in the 2008 general election.

Ex. 131. The Zavadils became members of Our Lady of Tahoe Catholic Church, indicating that

they were "full time Tahoe residents." Ex. 139. Mr. Zavadil represented to the parish that his

occupation was "management/sales." Ex. J39. In January 2006, Mr. Zavadil asked their

parishes in Glenwood and Alexandria to remove the couple from their respective parish lists,

31

explaining that "the State of Minnesota laws are quite specific related to membership for non-

residents." Ex. J40. The Zavadils joined the local community center in Nevada. Ex. J4 l. The

Zavadils notified various banks and financial institutions to change their address to their post

office box in Zephyr Cove. Ex. J42. But the Zavadils continued to see their Minnesota dentist

and physician. Stip. ~~ 67, 68. In addition, the Zavadils continued to use Minnesota accountants

and attorneys. Stip. ~~ 69, 70.

Effective January l, 2006, Ms. Zavadil sold her stock in American Diversity Business

Solutions to her three children and two others. Ex. JS. As part of the sale, American Diversity

redeemed a portion of Ms. Zavadil' s shares for $1.4 million, paid over time at the rate of $15,000

per month. Tr. 1166. After the sale, Ms. Zavadil remained Chairman of the Board and Chief

Executive Officer. Tr. 1167.

The promissory note from the ESOP to Mr. Zavadil was eventually refinanced in

July 2006, resulting in a $18,628,385 payment to Mr. Zavadil. Stip. ~6; Exs. J44, at 1138, J66

at33 (§ 4.l(o)).5 As part of the refinance, Mr. Zavadil repaid his $4.26 million ledger balance

with American Solutions for Business, Tr. 1160-63; Ex. J65; Ex. J66, at 33 (§ 4.l(o)), and

secured a loan for ASB with an $8 million certificate of deposit, Tr. 1160-63. Ex. J64 (Larry

agreed to "cover any excess or increase in interest or any other costs associated with this

transaction" for the first three years and to "continue to pledge securities as necessary"

thereafter). The refinancing eliminated Mr. Zavadil as an authorized signer on the company's

checking account and eliminated the company's ability to issue manual checks except in an

emergency. Ex. J65; Ex. J66, at§ 4.l(q)(r) (establishing as a condition precedent to the lender's

5 As part of the refinancing, American Solutions for Business also obtained a $25 million line of credit from Wells Fargo. Ex. J66.

32

willingness to lend "[ e ]vidence that Larry A. Zavadil has been removed as an authorized signer

on any checking or loan account of' American Solutions for Business, and requiring that

American Solutions for Business "establish[] policies and procedures ... to ensure that any

advances to or transactions with officers, directors, employees or other Affiliates . . . will be

approved in advance by the board of directors").

In October 2006, Zavadil Limited Partnership transferred 19140 Halwood Road to Mr.

Zavadil by quit claim deed. Ex. J15. The Zavadils had invested about $900,000 in the property,

although no property on Lake Minnewaska had ever sold for more than $1 million. Tr. 887. Mr.

Zavadil anticipated that the property might be sold at a loss. Tr. 887. Ordinarily, Mr. Zavadil

would transfer unprofitable properties to Zavadil Development (his wholly owned corporation).

Tr. 887. In this case, however, the couple had personally guaranteed a mortgage on the property

held by Glenwood State Bank, and Ms. Zavadil had no ownership interest in Zavadil

Development. Tr. 887. By asserting that the total consideration for the transfer was $500.00 or

less, the partnership paid a deed tax of only $1.65. Ex. J15. But by April 2007, the Zavadils had

received an offer from a third party to purchase the property for $1.2 million. Tr. 889. In

April 2007, Mr. and Ms. Zavadil transferred 19140 Halwood Road back to Zavadil Limited

Partnership, this time by warranty deed. Ex. J16. Again, the total consideration for the transfer

was claimed to be $500.00 or less, on which the deed tax was only $1.65. Ex. 115. The deed tax

paid on the ultimate May 2007 sale was $3,960. Ex. Jl 7.

In December 2006, Zavadil Limited Partnership transferred 19752 Halwood Road to Mr.

Zavadil by quit claim deed. Ex. J21. According to Mr. Zavadil, the property was "ready to go to

market" but at "a significant loss"-if the property sold at all. Tr. 899. By then, Ms. Zavadil

was no longer a partner in Zavadil Limited Partnership, having transferred her limited

33

partnership interest to the Zavadil children and her general partnership interest to Mr. Zavadil.

Ex. 18. At the same time, though, she had personally guaranteed the construction loan. Tr. 899.

By asserting that the total consideration for the transfer was $500.00 or less, the partnership paid

a deed tax of only $1.65. Ex. 121. But in May 2007, Mr. and Ms. Zavadil transferred 19752

Halwood Road back to Zavadil Limited Partnership by quit claim deed, again paying a deed tax

of only $1.65. Ex. 122. According to Mr. Zavadil, the property was better "protected long term"

in the hands of the partnership because the rent paid by the Zavadils "provided cash flow to keep

the property serviced." Tr. 900.

In March 2007, the Zavadils listed 19752 Halwood Road and accompanying 31 acres for

sale with Robert Hare of White Oak Real Estate Advisers for $8.9 million. Ex. 193. In setting

the listing price, Mr. Zavadil started with his investment in the property ($6.6 million), and then

added enough "[ s ]o if we had to discount it, . . . we had to cut off 10 percent, we were still

profitable with the 6.6 basis." Tr. 903. The property was then held by Zavadil Limited

Partnership, but the Zavadils signed the required Seller's Property Disclosure Statement as the

sellers. Ex. 194. On the disclosure statement, the Zavadils indicated that they had "occupied this

home continuously for the past 12 months." Ex. 194. Although Mr. Hare had the listing for as

long as a year and a half, Tr. 792, the property did not sell. Tr. 903-04. Eventually, Mr. Hare

could no longer pay the cost of marketing the property, Mr. Zavadil could not afford to reduce

the price by enough to enable the property to be sold, Tr. 903-04, and the property was taken off

the market.

In 2007, the Zavadils also listed the Zephyr Cove home for sale. Stip. ~ 26. The property

did not sell until 2011, and then only as a short-sale. Ex. 113; Stip. ~ 26. In the two years

leading up to the sale, the Zavadils spent only two weeks at the property. Tr. 1043.

34

Meanwhile, the fortunes of American Solutions for Business had taken a turn for the

worse. According to Mr. Zavadil, American Solutions for Business never made a profit on what

it sold: those funds went "into the infrastructure or [General] and [Administration] and

managing the business." Tr. 878. Rather, its profits stemmed from the discounts it received

from paying its vendors early. Tr. 878, 471. But the installation of a new computer system

caused delays in processing invoices, Tr. 42-43, so the company did not receive discounts from

its vendors. In addition, the discounts that the company's customers had come to expect-and

that were the reason for doing business with the company in the first place-were no longer

being offered. Tr. 707-08. Many of its sales associates complained about its corporate, non-

associate-friendly environment and threatened to leave. Tr. 41-42.

In 2008, Mr. Zavadil wrote to the associates of American Solutions for Business that he

had once again "become 'hands on' in day-to-day operations" of the company. Ex. J4. The

Zavadils moved back to Minnesota from Zephyr Cove, bringing with them their personal

belongings. Stip. ~84; Tr. 847, 1007-08. To save the company, Mr. Zavadil was forced to seek

capital from private investors. Tr. 709-11.

The Zavadils contend that their reti.un to Minnesota was unforeseen, but the record in this

case suggests otherwise. According to Stephen Klick, a customer of American Solutions for

Business, as early as 2005 or 2006, the company was "in big time trouble." Tr. 707. Mr. Klick

testified:

American is a sales company, so basically it's built around relationships. You build a company like that, and the person that builds the relationships, I refer to him as a Pied Piper because that's what he is~ That person is no longer there, it becomes a company that gets put into jeopardy real, real quickly, and the reason is because a lot of the sales stuff is based upon a relationship type of environment. . . . You pluck [Mr. Zavadil] out of the equation, you pluck the relationships along with that out of the equation, and unless somebody steps up to the plate ... it can go south in a real big hurry.

35

Tr. 724-25.

The Zavadils filed their 2005 and 2006 federal income tax returns using their Nevada

address. Exs. 43, 44. The Zavadils filed their 2005 Minnesota income tax return as part-year

residents, claiming to have been Minnesota residents from January 1 to October 31, 2005, and

apportioned their 2005 income between Minnesota and elsewhere. Ex. 43, at Sch. MlNR. The

Zavadils filed their 2006 Minnesota income tax return as nonresidents, claiming to have been

Nevada residents for the entire tax year, and apportioned their 2006 income between Minnesota

and elsewhere. Ex. 44, at Sch. MlNR. The Zavadils did not report the proceeds of refinancing

the ESOP promissory note on their 2006 Minnesota income tax return as Minnesota-source

income. See Ex. 144, at Sch. MlNR. As a result, although the Zavadils reported a federal

adjusted gross income of more than $1 7 million, only $1.3 million was attributed to Minnesota.

Ex. 144, at Sch. MlNR.

In April 2010, the Minnesota Commissioner of Revenue assessed the

Zavadils $1,375,990 in additional Minnesota income taxes, plus penalty and interest, on the

ground that the Zavadils were Minnesota residents for all of 2005 and 2006. Ex. J52.6 The

Zavadils administratively appealed the Commissioner's order, Ex. 153, which was affirmed in

January 2012, Ex. 146. The Zavadils timely appealed to our court. Ex. J45.

6 At trial, the Zavadils argued that the Department of Revenue auditor who audited their 2005 and 2006 Minnesota income tax returns was biased against them. Tr. 317 (the Zavadils' counsel arguing: "I think that what's happened here is there was a preconceived notion of the outcome of this . . . I think that there was a preconceived notion that they were residents .... "). But the Zavadils exercised their right to an administrative review by an appeals officer of the auditor's order, and the order on appeal here was issued by an appeals officer. See Ex. J45 (Not. Appeal). There is no accusation here, much less any evidence, that the appeals officer was biased in any respect toward the Zavadils.

36

II. LEGAL STANDARD

The term "resident" means "any individual domiciled in Minnesota" and "any individual

domiciled outside the state who maintains a place of abode in the state and spends in the

aggregate more than one-half of the tax year in Minnesota." Minn. Stat. § 290.01, subd. 7(a), (b)

(2014). The term "domicile" means "the bodily presence of an individual person in a place

coupled with an intent to make such a place one's home." Minn. R. 8001.0300, subp. 2 (2013).

In other words, it is the place in which a person's habitation is fixed, "without any present

intentions of removal therefrom, and to which, whenever absent, that person intends to

return." Id.

When an individual domiciled in Minnesota acquires a new out-of-state residence, the

issue of whether the individual's domicile has changed is "ordinarily a question of fact,

depending ... upon the purpose and intent of the change." Mauer v. Comm 'r of Revenue, 829

N.W.2d 59, 67-68 (Minn. 2013) (internal quotation and citation omitted). Once an individual's

domicile has been established in Minnesota, "it is presumed to continue until another domicile is

actually established." Id. at 68 (citation omitted). Accordingly, the taxpayer has the burden of

proving a new domicile outside of Minnesota. Sanchez v. Comm 'r of Revenue, 770

N.W.2d 523, 526 (Minn. 2009).

To satisfy due process concerns, there must be ( 1) "some definite link, some minimum

connection, between a state and the person, property or transaction it seeks to tax" and (2) a

rational relationship between ''the income attributed to the State for tax purposes [and the] values

connected with the taxing State." Quill Corp. v. North Dakota, 504 U.S. 298, 306 (1992)

(citation and internal quotation omitted).

The income tax ... is founded upon the protection afforded to the recipient of the income by the government . . . in his right to receive the income and in his

37

enjoyment of the income when in his possession. That government provides for him all the advantages of living in safety and in freedom and of being protected by law. It gives security to life, liberty and the other privileges of dwelling in a civilized community. It exacts in return a contribution to the support of that government measured by and based upon the income, in the fruition of which it defends him from unjust interference.

Maguire v. Trefry, 253 U.S. 12, 14 (1920) (quotation omitted).

In evaluating a claim of change of domicile, the nature of our inquiry has therefore been

described in several ways. See, e.g., Luther v. Comm 'r of Revenue, 588 N.W.2d 502, 509

(Minn. 1999) (stating that the court is to consider whether, and to what extent, the taxpayer

continued to enjoy "the many services, benefits, and protections afforded [] by Minnesota in []

the right to receive and enjoy [] income"); Larson v. Comm 'r of Revenue, 824 N.W.2d 329, 333-

34 (Minn. 2013) {approving of this court's reliance on the taxpayer's "continued presence in

Minnesota" and consideration of the "locus" of the taxpayer's life); Larson v. Comm 'r of

Revenue, No. 4909, 1988 WL 91652, at *7 (Minn. T.C. Aug. 19, 1988) (observing that the

taxpayers retained "significant contacts" with Minnesota). To assist in the inquiry, Minn.

R. 8001.0300, subp. 3 (2013), sets forth 26 factors to consider.7 These factors do not require a

7 Those factors are: A. location of domicile for prior years; B. where the person votes or is registered to vote; C. status as a student; D. classification of employment as temporary or permanent; E. location of employment; F. location of newly acquired living quarters, whether owned or rented; G. present status of the former living quarters (i.e., whether it was sold, offered for sale, rented, or available for rent to another); H. whether homestead status has been requested and/or obtained for property tax purposes on newly purchased living quarters and whether the homestead status of the former living quarters has not been renewed; I. ownership of other real property; J. jurisdiction in which a valid driver's license was issued; K. jurisdiction from which any professional licenses were issued; L. location of the person's union membership; M. jurisdiction from which any motor vehicle license was issued and the actual physical location of the vehicles; N. whether resident or nonresident fishing or hunting licenses were purchased; 0. whether an income tax return was filed as a resident or nonresident; P. whether the person has fulfilled the tax obligations required of a resident; Q. location of any bank accounts, especially the location of the most active checking account; R. location of other transactions with financial institutions; S. location of the place of worship at which the person is a member; T. location of business relationships and the place where business is transacted; U. location of social, fraternal,

(Footnote continued on next page.)

38

"formulaic approach," and "the sheer quantity of factors" weighing either in favor of or against

an individual's Minnesota domiciliary status is not conclusive. Dreyling v. Comm 'r of

Revenue, 711N.W.2d491, 495 (Minn. 2006). Rather, the factors are a "nonexclusive list" to aid

in the determination of domicile. Mauer, 829 N.W.2d at 68 (citations omitted).

In addition, to the 26 factors found in the administrative rule, we also consider the

individual's acts and declarations in light of the surrounding circumstances. Minn.

R. 8001.0300, subp. 2 (noting that "intention may be proved by acts and declarations"); see also

Comm 'r of Revenue v. Stamp, 296 N. W.2d 867, 869 (Minn. 1980) ("where there are definite

statements of intent to make a new abode one's home, the trier of fact may consider the acts and

circumstances of that person in evaluating the sincerity of the announced intent"); Mauer, 829

N. W .2d at 69. As between acts and declarations, "acts must be given more weight than

declarations." Minn. R. 8001.0300, subp. 2 (2013); Seccomb v. Bovey, 135 Minn. 353, 356, 160

N.W.2d 1018, 1020 (1917) (noting that a person's conduct is given greater weight than a

declaration of domicile); see also Howe v. Comm 'r of Revenue, Nos. 4471, 4375, 1986

WL 9429, at *4 (Minn. T.C. June 13, 1986) ("While appellant's declarations clearly showed that

he wished to be free of Minnesota's tax laws, his conduct was not sufficient to show an intent to

(Footnote continued from previous page.) or athletic organizations or clubs, lodges, or country clubs in which the person is a member; V. address where mail is received; W. percentage of time (not counting hours of employment) that the person is physically present in Minnesota and the percentage of time (not counting hours of employment) that the person is physically present in each jurisdiction other than Minnesota; X. location of jurisdiction from which unemployment compensation benefits are payable; Y. location of schools at which the person or the person's spouse or children attend, and whether resident or nonresident tuition was charged; and Z. statements made to an insurance company, concerning the person's residence, and on which the insurance is based. See Minn. R. 8001.0300, subp. 3 (2013).

39

abandon Minnesota as his domicile"). In evaluating the sincerity of declarations, we give greater

weight to those made for reasons other than to establish domicile or residency.

Here, the parties have stipulated that Mr. and Ms. Zavadil were domiciled in Minnesota

until October 31, 2005, and after January 1, 2009. Stip. ~~ 3, 84. At issue in this case is whether

Mr. and Ms. Zavadil changed their domicile to Nevada for the time period November 1, 2005,

through December 31, 2006. The Commissioner contends that Mr. and Ms. Zavadils' domicile

never changed from Minnesota, Comm'r's Post-Trial Mem. Law 1-2; Mr. and Ms. Zavadil

contend they established a new domicile in Nevada on November 1, 2005, Zavadils' Post-Trial

Br. 1-2. Accordingly, to meet their burden, Mr. and Ms. Zavadil must rebut the presumption that

their domicile did not change from Minnesota by proving that they established a new domicile in

another state-in this case, Nevada. Mauer, 829 N.W.2d at 68.

Ill. EVALUATIONOFTHEZAVADILS' ACTIONS

We first consider the actions that the Zavadils took (and did not take) to establish a new

domicile in Nevada:

A. Voting and registration to vote (Factor B).

We have observed that voter registration and participation are relevant to domicile

because lack of participation in the electoral process suggests the absence of ties to the

community. Dreyling v. Comm 'r of Revenue, No. 7622-R, 2005 WL 473893, at *7 (Minn. T.C.

Feb. 25, 2005). The Zavadils registered to vote in Nevada on November 28, 2005. Stip. , 48;

Ex. J28. In January 2006, the Zavadils asked to be removed from the voter rolls in Glenwood

Township. Stip. ~ 49; Ex. J29. Mr. and Ms. Zavadil voted in person in the Nevada primary

election in August 2006 and voted early in the November 2006 Nevada general election.

Stip. ~ 51; Ex. 131. Mr. Zavadil voted in person in the November 2008 Nevada general election.

40

Stip. , 51; Ex. 131. In addition, Mr. Zavadil resigned at some point from the Pope County

Planning and Zoning Commission. Tr. 974-75. In the absence of other ties to the community,

this factor supports the Zavadils' claim of a change in domicile.

B. Status as a student (Factor C); Location of schools at which the person or the person's spouse or children attend, and whether resident or nonresident tuition was charged (Factor Y).

Many schools and colleges charge higher tuition to nonresident students than to resident

students. Accordingly, a taxpayer who pays a lower resident tuition has "enjoyed" one of "the

many services, benefits, and protections afforded" by the state. See Luther, 588 N.W.2d at 509.

In this case, neither of the Zavadils were students during the years at issue, nor were any of their

three children.

C. Location of employment (Factor E); Classification of employment as temporary or permanent (Factor D); Location of jurisdiction from which unemployment compensation benefits are received (Factor X).

We consider several aspects of employment. A taxpayer who is employed in Minnesota

benefits from Minnesota's employment laws, such as those protecting workers from injury on the

job (Minn. Stat. ch. 176 (2014)) and from discrimination in employment (Minn. Stat. ch. 363

(2014)). At the same time, a taxpayer could be employed in Minnesota only temporarily without

abandoning (or intending to abandon) her domicile elsewhere. See Minn. R. 8001.0300, subp. 2

("A person who is temporarily employed within this state does not acquire a domicile in this

state if during that period the person is domiciled outside of this state.").

In this case, Ms. Zavadil founded American Minority Business Forms (later known as

American Diversity Business Solutions) in 1992, Stip. , 11, and was its sole shareholder.

Effective January 1, 2006, Ms. Zavadil sold her interest in American Diversity Business

Solutions to her three children and two others. Stip., 12; see Ex. JS. After the sale, Ms. Zavadil

remained chairman of the board and chief executive officer, Tr. 1167, although there is no

41

evidence in this record that she was compensated for those roles. While in Minnesota, Ms.

Zavadil also worked occasionally for a friend's interior design studio in Minnesota, for which

she was paid less than $1,000 in 2006. Ex. J44. That Ms. Zavadil remained employed by a

Minnesota company and performed services for that company in Minnesota are evidence that

Ms. Zavadil remained domiciled in Minnesota.

The Zavadils characterize Ms. Zavadil' s work in 2006 for American Diversity Business

Solutions as "incidental" and her visits to American Diversity Business Solutions as

"infrequent." Zavadils' Post-Trial Br. 7; see also Zavadils' Pre-Trial Br. 5 (describing Ms.

Zavadils' services for Diversity as "minimal"). The factual record contradicts these

characterizations. In response to the Commissioner's pretrial discovery requests, the Zavadils

averred that Ms. Zavadil worked for American Diversity Business Solutions during 2006 in

Minnesota for all of 120 days and parts of 13 others. Appellants' Responses Appellee's First Set

Interrogs. Requests Production Documents 20-24 (Bruggeman Aff. (filed July 2, 2014) Ex. 2);

see also D. Zavadil Depo. 11-12 ("whenever I was in Glenwood, I would go into the office .... I

would go over some of the financial reports.") (Bruggeman Aff. (filed July 2, 2014) Ex. 14A).8 9

And in a November 2013 affidavit submitted in support of the Zavadils' motion for summary

judgment, Ms. Zavadil stated under oath: "For some of the days on which I was in Minnesota,

8 Ms. Zavadil had reason to frequent American Diversity Business Solutions' offices and to review its financial reports. As part of the sale of Ms. Zavadils' shares to her children and two others, American Diversity Business Solutions redeemed a portion of Ms. Zavadil' s stock for $1.4 million, paid over time at the rate of $15,000 per month. Tr. 1166. Ms. Zavadil therefore had an interest in ensuring that the company remained profitable and solvent.

9 The parties stipulate that Ms. Zavadil was in Minnesota for 152 full and 28 partial days during 2006. Stip. ~ 73.

42

my primary reason for being in Minnesota was business-related, specifically for [American]

Diversity." D. Zavadil Aff. ~ 9 (filed Nov. 14, 2013).

The Zavadils' claims with respect to Mr. Zavadil's employment are also contradicted by

the factual record. Before trial, the Zavadils described Mr. Zavadil as "semi-retired." Zavadils'

Pretrial Br. 5; see also Ex. J105 (2005 Minnesota Revenue Residency Questionnaire, describing

Mr. Zavadil as "retired"), J106 (2006 Minnesota Revenue Residency Questionnaire, describing

Mr. Zavadil as "retired"). But in June 2000, Mr. Zavadil signed a written employment

agreement with American Business Forms under which Mr. Zavadil agreed to serve as Chief

Executive Officer "on a full-time basis" until the later of June 30, 2005, or full satisfaction of the

loan from Mr. Zavadil to the ESOP, Ex. JI 07, at 1, an event that did not occur until the ESOP

was refinanced in mid-2006. 10 Mr. Zavadil's employment agreement allowed him to terminate

his employment on 30 days' written notice. Ex. J107, at 2. There is no evidence before us that

such notice was ever given.

Moreover, even after the ESOP refinance, a 2005 Credit and Security Agreement

between American Solutions for Business and Wells Fargo allowed Wells Fargo to "demand

immediate payment" of all amounts outstanding in the event that Mr. Zavadil "shall cease to

actively manage [American Solutions for Business]'s day-to-day business activities." Ex. J66,

at§ 7.l(c) (defining default to include a "Change of Control"), p. 3 (defining "Change of

Control" to include, among other events, that "[a ]ny of Craig McLain, Curt Briggs, Joseph Nilan,

Larry Zavadil, or Michael Stai shall cease to actively manage [American Solutions for

Business]'s day-to-day business activities"). In December 2005 Mr. Zavadil wrote to the

10 Because of the terms of the ESOP, Mr. Zavadil's compensation was limited to participation in the company's phantom stock plan and to receiving certain fringe benefits. Ex. J107, at 1.

43

employees and associates of American Solutions for Business that "even though [he and Ms.

Zavadil are] Nevada residents," he "will still be spending the same amount of time in the office."

Ex. J3. In fact, Mr. Zavadil spent at least 239 days in Minnesota in 2005 and 182 full or partial

days in Minnesota in 2006. Stip. ~~ 71, 73.

Mr. Zavadil was also the general partner of Zavadil Limited Partnership and the sole

shareholder, officer, and director of Zavadil Development, Inc., during the years at issue.

Tr. 966. Zavadil Limited Partnership owned many properties in Minnesota, including properties

leased to American Solutions for Business during 2005 and 2006. See Ex. Jl l O; Exs. J43, J44

(federal tax returns of Zavadil Limited Partnership). Similarly, Zavadil Development, Inc.,

owned and sought to develop many properties in Minnesota, which required Mr. Zavadil's -

active participation and presence in Minnesota. See Exs. J108, 109; Exs. J43, 44 (federal tax

returns of Zavadil Development). For example, Mr. Zavadil was negotiating with the City of

Alexandria for annexation of 600 acres of property on Lake Andrew, on which Zavadil

Development hoped to build a mixed commercial/residential development. Tr. 923-24. He was

also negotiating with Douglas County for lake access from property owned by Zavadil Limited

Partnership. Tr. 925-26. And, he was working on development of the fairgrounds in Glenwood.

Tr. 927-28.

That the Zavadils remained employed by Minnesota businesses, and performed

significant services for those Minnesota businesses in Minnesota, is evidence that the Zavadils

remained domiciled in Minnesota.

D. Location of newly acquired living quarters [and] whether owned or rented (Factor F); Ownership of other real property (Factor I).

A taxpayer who owns real property in Minnesota benefits from Minnesota's laws

protecting property ownership and from the services offered to property owners by local

44

communities. Luther, 588 N.W.2d at 509 (noting that the taxpayer's property in Minnesota

received police and fire protection "all year long").

In this case, there is no dispute that the Zavadils purchased land in Nevada on which they

built a custom home. The Zavadils contend that the custom nature of the home-including, for

example, the fact that it incorporated an elevator and elaborate teleconferencing facilities for Mr.

Zavadil-is evidence of a Nevada domicile. Zavadils' Post-Trial Br. 9 ("when the new home is

a 'dream house' that has been located, designed, built, and furnished specifically to the

taxpayers' tastes, the new home provides even stronger evidence that the taxpayers have changed

their domicile"). Although the custom nature of the Zavadils' Nevada home is undisputed,

considering that even a second home or vacation property can be custom-designed, it is not

conclusive.

The Zavadils contend that, with the exception of a partial interest in a tree farm, they

"personally owned" no real property in Minnesota "continuously in 2005 and 2006." Zavadils'

Post-Trial Br. 15. On that point, the Zavadils are technically correct: with the exception

of 19752 Halwood Road in Glenwood, which was deeded to Mr. Zavadil in October 2006 and

deeded back to Zavadil Limited Partnership in March 2007, the Zavadils personally owned no

real property in Minnesota in 2005 or 2006. But in evaluating this claim, it is only fair to

consider the Zavadils' casual observance and instrumental use of business formalities in their

many real estate transactions. Put another way, we see no reason to give the formalities of

ownership any more consideration than the Zavadils themselves did during the years at issue.

The record before us demonstrates that the Zavadils gave little consideration to whether a

particular piece of property was formally held in the name of Zavadil Limited Partnership or

Zavadil Development: they treated the property as their own. Accordingly, we consider the

45

Zavadils to have owned and controlled significant amounts of real property in Minnesota during

the years at issue.

In June 2000, for example, Mr. Zavadil signed a document purporting to be a lease to him

of 19140 Halwood Road in Glenwood by Zavadil Limited· Partnership. Ex. 114. But Zavadil

Limited Partnership was not formed until December 21, 2000. Ex. J6. 11 In October 2006,

Zavadil Limited Partnership deeded its interest in 19140 Halwood to Mr. Zavadil personally,

declaring in the process that "[t]he total consideration for the transfer" of the property

was "$500.00 or less." Ex. 115.12 In April 2007, the Zavadils deeded the property back to

Zavadil Limited Partnership, again declaring that "[t]he total consideration for the transfer" of

the property was "$500.00 or less." Ex. 116. In fact, the Zavadils were on the verge of

selling 19140 Halwood Road for $1.2 million. See Ex. JI 7. By declaring the consideration for

the transfer to be $500.00 or less, the Zavadils paid a deed tax of only $1.65 on each of the

transfers. See Exs. J16, Jl 7. 13

11 The Zavadils contend that title to 19140 Halwood Road was held by Zavadil Limited Partnership. Zavadils' Proposed Findings Fact Conclusions Law ~ 63 ("Among the assets transferred into ZLP was 19140 Halwood Road"). Exhibit J6 is the Zavadil Limited Partnership agreement between Mr. and Mrs. Zavadil. Exhibit 1 to the partnership agreement is described as a list of the properties transferred to the partnership at its formation, see Ex. 16, at~ 4.1, but that list is not part of our record here. Other exhibits, however, reference 19140 Halwood Road as owned by the partnership, and there appears to be no dispute that as of the years at issue here, 19140 Halwood Road was indeed the property of Zavadil Limited Partnership.

12 In 2002, Ms. Zavadil had assigned her limited partnership interest in Zavadil Limited Partnership to the three Zavadil children, in equal shares. Ex. J7.

13 The Zavadils and their attorney assert there was nothing untoward about the transfers. Tr. Vol. VII 92-94. Ordinarily, deed tax is calculated as .0033 (0.33%) of the net consideration for the transfer. Minn. Stat. § 287.21, subd. l(b)(3) (2014). Under Minn. Stat. § 287.20, subd. 3a (2014), however, the deed tax on, among other things, "a transfer between an entity owned by a sole owner and that sole owner," or "a transfer between an entity in which one or both spouses who are married to each other are the sole owners, and one or both of the spouses" is only $1.65. See Minn. Stat. § 287.21, subd. l(b)(ii) (2014). When the sole owners of Zavadil

(Footnote continued on next page.)

46

In 2002, Zavadil Limited Partnership purported to lease a condominium in downtown

Minneapolis to Mr. and Ms. Zavadil. Mr. Zavadil signed the lease on behalf of the partnership,

but there is no place in the written document for the tenant to sign (much less an actual

signature). Ex. J23. Similarly, in 2002 Zavadil Limited Partnership purported to lease a

different condominium in downtown Minneapolis to Mr. and Ms. Zavadil. Again, Mr. Zavadil

signed the lease on behalf of the partnership, but there is no place in the written document for the

tenant(s) to sign (much less an actual signature). Ex. J24. In 2004, Zavadil Limited Partnership

purported to lease property on Marco Island, Florida, to Mr. and Ms. Zavadil. Like the other

leases, there is no place on the written document for the tenant( s) to sign, and no tenant

signature. Ex. J25. In March 2007, Mr. and Ms. Zavadil personally signed the Seller's Property

Disclosure Statement required by Minn. Stat. § 513.52-.60 (2014) with respect to 19752

Halwood Road in Glenwood. Ex. J94 (instructing the seller to "[ c ]omplete this form

yourself'). 14 The Zavadils averred that they had occupied 19752 Halwood Road "continuously

for the past 12 months." Ex. J94. The Zavadils applied for insurance on 19752 Halwood Road

in the name of Zavadil Limited Partnership, but listed the partnership's occupation as "CEO" and

(Footnote continued from previous page.) Limited Partnership were Mr. and Ms. Zavadil, a transfer between either of the Zavadils and the partnership would have qualified for the exception. But in December 2002, the Zavadils assigned their limited partnership interests to their children, see Ex. J7, meaning that after December 2002, transfers to and from Zavadil Limited Partnership no longer qualified for the exception. The attorney who drafted the October 2006 and April 2007 deeds testified that, at the time the properties were transferred, he thought Mr. Zavadil was the sole owner of Zavadil Limited Partnership, and that he was unaware that the Zavadils' children owned a portion of the partnership. Tr. Vol. VII 99-101. Even if not improper, this demonstrates that the Zavadils freely altered their form of ownership of property to suit their pecuniary interests.

14 Zavadil Limited Partnership transferred 19752 Halwood Road to Mr. Zavadil individually in October 2006, Ex. J21; not until May 2007 would the Zavadils transfer the property back to the partnership, Ex. J22. Accordingly, Mr. Zavadil was in fact the owner of the property in March 2007.

47

its employer as "American Business Forms." Ex. 161. Moreover, the partnership qualified for a

"mature homeowner discount" based on Mr. Zavadil's age. Exs. 168, 169, 110, 171, 173, 174,

175, 176. In substance, therefore, the Zavadils applied for, and were issued, the policies. In light

of these discrepancies, the Zavadils' insistence on the formalities of title is at least ironic.

The Zavadils' extensive property holdings in Minnesota, and their continued use of those

properties during the years at issue, are powerful evidence that the Zavadils remained domiciled

in Minnesota. See Larson v. Comm 'r of Revenue, No. 8125-R, 2012 WL 128322, at *12 (Minn.

T.C. Jan 11, 2012) (in finding that the taxpayer remained a Minnesota resident, noting that "most

of [the taxpayer's] business ... occurred in Minnesota"). Even accepting that the Zavadils

themselves "continuously" owned no real property in Minnesota during the years at issue, we

would reach the same conclusion.

The Zavadils further contend that they in good faith attempted to sell 19752 Halwood

Road, but could not without losing millions of dollars. Tr. Vol. VII 44. We do not doubt the

accuracy of that statement, but we weigh this fact among many.

The Zavadils note that their mortgage with Wells Fargo for the Nevada property required

them to "occupy, establish, and use the Property as [their] principal residence within 60 days" of

the execution of the mortgage, and to "continue to occupy the Property as [their] principal

residence for at least one year after the date of occupancy," unless Wells Fargo agreed otherwise

in writing. Ex. J 11, at 7. The Zavadils emphasize that there was no similar provision in the

mortgage securing the property at 19752 Halwood Road in Glenwood. See Ex. J20 (2005

mortgage from Zavadil Limited Partnership to Glenwood State Bank). 15 Although technically

IS

claim. We decline the Zavadils' invitation to cherry-pick only those provisions that support their

That the Halwood Road mortgage did not include a residency requirement is (Footnote continued on next page.)

48

true, Mr. Zavadil's 2005 lease of 19752 Halwood Road obligated him to "use the House as his

permanent residence and homestead" through at least June 1, 2020. Ex. J18.

The Zavadils' property holdings in Minnesota, and their continued management and use

of those properties during the years at issue, is evidence of the Zavadils' continued Minnesota

domicile.

E. Jurisdiction in which a valid driver's license was issued (Factor J); Jurisdiction from which any professional licenses were issued (Factor K); Location of the person's union membership (Factor L); Jurisdiction from which any motor vehicle license was issued and the actual physical location of the vehicles (Factor M); Whether resident or nonresident fishing or hunting licenses were purchased (Factor N).

In November 2005, Mr. and Ms. Zavadil obtained Nevada driver's licenses. Stip. , 52;

Exs. J32, J33. On the same day, the Zavadils registered a 2002 Dodge Durango in Nevada.

Stip., 53. The Zavadils obtained insurance on the Durango satisfying the requirements of

Nevada law. Stip. , 54. Obtaining Nevada driver's licenses is evidence that the Zavadils

intended to change their domicile. 16 17

The Zavadils' many other vehicles, however, remained registered and physically located

in Minnesota, including: (1) a 2004 Chevy Silverado owned by Zavadil Development and driven

primarily by Mr. Zavadil; (2) a 2000 Audi owned by Zavadil Limited Partnership and driven

(Footnote continued from previous page.) unremarkable, considering that the Glenwood bank's mortgage form is the "Minnesota agricultural/commercial real estate security instrument." Ex. J20, at 1.

16 The Zavadils obtained nonresident Minnesota fishing licenses in Minnesota, Ex. J46; Tr. 275, a factor that the Zavadils contend weighs in their favor. Zavadils' Post-Trial Br. 16. To obtain a resident license, Minn. Stat. § 97 A.405, subd. 5 (2014), requires (with exceptions not applicable here) that one possess a current Minnesota driver's license. The Zavadils having surrendered their Minnesota driver's licenses to the State of Nevada, Tr. 421, 970, a nonresident license was the only option.

17 Neither of the Zavadils hold any professional licenses or are union members.

49

primarily by Ms. Zavadil; (3) a 2004 Lexus owned by Zavadil Limited Partnership and driven

primarily by Mr. Zavadil; ( 4) a 2004 Cadillac owned by Zavadil Development, Inc.; (5) a 2004

Felling trailer owned by Mr. Zavadil and used primarily by American Solutions for Business; (6)

a 1969 Crestliner boat and trailer owned by Mr. Zavadil and used primarily by one of the

Zavadils' sons; (7) two jet-skis owned by Mr. Zavadil and used by the Zavadils' children; (8) a

Lund fishing boat owned by Mr. Zavadil and used primarily by one of the Zavadils' sons; (9) an

all-terrain vehicle owned by Mr. Zavadil and used by American Solutions for Business; (10) two

motorcycles owned by Mr. Zavadil and stored in Minnesota. Stip. ~ 56. To the extent any of

these vehicles were insured, they were insured under policies written in Minnesota and issued by

Minnesota insurance agencies and governed by Minnesota's insurance laws. Stip. ~~ 57-59.

This is evidence that the Zavadils remained domiciled in Minnesota.

F. Location of any bank accounts, especially the location of the most active checking account (Factor Q); Location of other transactions with financial institutions (Factor R); Location of business relationships and the place where business is transacted (Factor T).

Taxpayers with bank accounts in Minnesota, taxpayers who enter into transactions with

financial institutions in Minnesota, and taxpayers who do business with Minnesota entities

benefit from state laws protecting those accounts and relationships. See Luther, 588 N. W.2d

at 509 (noting that "[o]n every day of the year, state laws protected [the taxpayer's] checking,

savings, and investment accounts, as well as the corporations with which she was affiliated").

We therefore consider where the Zavadils banked and where they conducted other financial

business.

Before the events at issue here, the Zavadils had strong financial ties to Minnesota. Mr.

Zavadil has a long-standing relationship with Glenwood State Bank, headquartered in Glenwood.

Tr. 442-43. Indeed, Mr. Zavadil was a director of the bank, and remained a director of the bank

50

after his purported change of domicile. Tr. 444, 455, 880. Mr. Zavadil personally guaranteed

loans from Glenwood State Bank to American Solutions for Business. Tr. Vol. VII, 50. Zavadil

Limited Partnership and Zavadil Development also maintained accounts at Glenwood State

Bank. Tr. 456; Stip., 76.

After their move to Nevada, the Zavadils continued to have strong financial ties to

Minnesota. Most importantly, Mr. Zavadil personally guaranteed the loan from Glenwood State

Bank that provided part of the funds required to refinance the loan from Mr. Zavadil to the

American Solutions for Business Employee Stock Ownership Plan. Tr. 1160-63. In addition,

Mr. Zavadil continued to freely use funds of American Solutions for Business to finance his real

estate projects, including projects undertaken by Zavadil Limited Partnership and Zavadil

Development. Tr. 915-16.

When the Zavadils moved to Nevada, they opened checking accounts with Wells Fargo,

which had financed the construction of the house in Zephyr Cove. Stip. , 77; Tr. 987. The

Zavadils emphasize that the Wells Fargo accounts "were their only personal checking accounts."

Zavadils' Post-Trial Br. 17. But the Zavadils' assertion must be evaluated in light of Mr.

Zavadil' s ability to finance his personal expenses and investments through American Solutions

for Business. By 2005, the trustee of the ESOP had already begun to question the extent of Mr.

Zavadil' s borrowing from the company, and the company was considering refinancing of the

ESOP as a way to cut off the flow of funds out of the company and into Mr. Zavadil's other

business ventures. See Tr. 766-67; Ex. J61. The Zavadils' personal accounts at Wells Fargo

were no doubt convenient for them, but also a hedge against the eventual end of Mr. Zavadil's

company borrowings. Moreover, there is no evidence in the record here of the extent to which

the Zavadils actually used their Nevada checking accounts.

51

The Zavadils employed professionals in Nevada (a real estate agent, mortgage broker,

interior designer, contractor), but those relationships appear limited to the construction of the

Zephyr Cove property. Indeed, Mr. Zavadil established and maintained many similar

connections in Minnesota in connection with the construction of 197 52 Halwood Road in

Glenwood. The Zavadils continued to see their Minnesota dentist and physician, and continued

to use the services of their Minnesota accountant and attorneys. Stip. ~~ 67-70. Moreover, Mr.

Zavadil continued to use his personal assistant at American Solutions for Business to manage his

calendar, sort his mail, process his correspondence, and set up his appointments. Tr. 988-90,

1130; Tr. Vol. VII 13-25. Mr. Zavadil had no such assistant in Nevada. And, although he

resigned from several boards in 2005 and 2006, Mr. Zavadil remained on the Board of Directors

of the Glenwood State Bank. Tr. 462, 880.

The Zavadils' extensive relationships with Minnesota businesses are evidence of the

Zavadils' continued domicile in Minnesota.

G. Location of the place of worship at which the person is a member (Factor S); Location of social, fraternal, or athletic organizations or clubs or [] lodge or country club in which the person is a member (Factor U).

The taxpayer's membership in religious and other organizations indicates both the

taxpayer's connection to the community and the extent to which the taxpayer benefits from state

laws affecting those organizations.

In November 2005, the Zavadils became members of Our Lady of Tahoe Catholic

Church in Zephyr Cove, Nevada. Stip. ~ 60. In January 2006, the Zavadils asked to be removed

from the parish lists at the Church of the Sacred Heart in Glenwood and the Church of St. Mary

in Alexandria. Stip. ~ 61. When in Nevada, the Zavadils attended Our Lady of Tahoe; when in

Minnesota, the Zavadils continued to attend church in Minnesota. Stip. ~ 62. Ms. Zavadil joined

the local community center in Zephyr Cove, Stip. ~ 64, Ex. J41. Ms. Zavadil also obtained a

52

card at the local library in Nevada. Tr. 1018. This is evidence supporting both the Zavadils'

intent to change their domicile to Nevada, and evidence that the Zavadils did not intend to

change domicile.

The Zavadils had no social, fraternal, athletic, or country club memberships in

Minnesota. Zavadils' Post-Trial Br. 20. According to the Zavadils, they ''joined" the Elk Point

Country Club in Nevada. Zavadils' Post-Trial Br. 20. In fact, Elk Point Country Club is nothing

more than the name of the gated community in which the Zavadils' Nevada home is located.

Stip. ~ 63; Tr. 955, 1018, 1148 (Mr. Zavadil testifying that membership in the "country club"

was "a part of the deal," and that the community had no golf course, tennis courts, or other like

amenities). The Zavadils' "membership" in the Elk Point Country Club is not evidence that the

Zavadils were domiciled in Nevada.

H. Percentage of time (not counting hours of employment) that the person is physically present in Minnesota and the percentage of time (not counting hours of employment) that the person is physically present in each jurisdiction other than Minnesota (Factor W).

In 2006, Mr. Zavadil spent 182 days in Minnesota and only 110 days in Nevada.

In 2006, Ms. Zavadil spent 180 days in Minnesota and 118 days in Nevada. Stip., 73.18 The

18 During discovery, the Zavadils produced calendars to the Commissioner purporting to show the number of days each spent in Minnesota (and elsewhere) during 2006. Bruggeman Aff. (filed July~' 2014) Ex. 2, at 15 (referring to ''the calendars for Tax Year 2006 previously provided to [the Commissioner]").

The Zavadils filed the same calendars with this court in support of their motion for summary judgment, Ms. Zavadil averring that she "kept a calendar of where [she] was on each day in the year for 2006." D. Zavadil Aff. (filed Nov. 14, 2013), 9. Ms. Zavadil attached to her affidavit a copy of a 2006 calendar; the calendar bears a legend on each day ("RENO," "MN," "FT. MEYERS"). D. Zavadil Aff. Ex. E. Each month, someone has calculated the number of "DAYS IN MN" and the number of "DAYS LEFT," subtracting from 183. D. Zavadil Aff. Ex. E.

(Footnote continued on next page.)

53

(Footnote continued from previous page.) Similarly, Mr. Zavadil averred that he "kept a calendar of where [he] was on each day in

the year 2006." L. Zavadil Aff. (filed Nov. 14, 2013) ~ 41. Mr. Zavadil attached to his affidavit a copy of a 2006 calendar. L. Zavadil Aff. Ex. D. Like Ms. Zavadil's, the calendar bears a legend on each day ("MN," "RENO"). L. Zavadil Aff. Ex. D. Each month, someone has calculated the number of "DAYS IN MN" and the number of "DAYS LEFT," subtracting from 183. L. Zavadil Aff. Ex. D. According to the calendar produced to the Commissioner in discovery, Mr. Zavadil spent a total of 182 days in Minnesota in 2006 and, specifically, spent December 20 and 21 in Colorado and December 24 in Minnesota. L. Zavadil Aff. Ex. D.

In April 2013, Mr. Zavadil testified during his deposition that the 2005 calendar produced to the Commissioner was a copy of a calendar maintained for him by his long-time secretary. Bruggeman Aff. (filed July 2, 2014) Ex. 14, at 185. Mr. Zavadil described the calendar as "very accurate." Bruggeman Aff. (filed July 2, 2014) Ex. 14, at 186. Mr. Zavadil further testified that the smaller-format 2006 calendar produced to the Commissioner was prepared by his secretary from a larger desk calendar she maintained. Bruggeman Aff. (filed July 2, 2014) Ex. 14, at 185-88 ("This is a-same type of calendar that Gladys created so that she didn't have to copy the big pages. So, she went to a smaller version of it so you get the whole thing on one page."). Although Mr. Zavadil agreed to provide the calendar from which the smaller-format calendar was prepared, Bruggeman Aff. (filed July 2, 2014) Ex. 14, at 190-91, he did not, nor did the Commissioner bring a motion to compel or subpoena American Solutions for Business for it.

Nevertheless, in November 2013, in conjunction with the parties' cross-motions for summary judgment and in apparent reliance on the calendars produced during discovery, the parties stipulated to the number of days that each of the Zavadils spent in Minnesota during 2005 and 2006. Stip. ~ 73. In particular, the parties stipulated that Mr. Zavadil spent at least 239 days in Minnesota in 2005 and only 182 full and partial days in Minnesota in 2006, and that Ms. Zavadil spent at least 239 days in Minnesota in 2005 and only 180 full and partial days in Minnesota in 2006. Stip. ~~ 71-73.

In December 2013, this court denied the parties' cross-motions for summary judgment, concluding there were genuine issues of material fact for trial. Order (Dec. 30, 2013).

In April 2014, during her deposition, Ms. Zavadil did not recognize the 2006 calendar attached to her affidavit, and which Ms. Zavadil had averred that she personally kept. Bruggeman Aff. (filed July 2, 2014) Ex. 14, at 76 (Ms. Zavadil testifying that she was seeing the calendar for "the first time").

More troubling, during the April 2014 deposition of Mr. Zavadil's secretary, the Commissioner obtained a copy of the large-format 2006 calendar from which Mr. Zavadil's secretary had prepared the calendar given to the Commissioner (and filed with this court). Bruggeman Aff. (filed July 2, 2014) Ex. 6. According to the 2006 calendar provided to the Commissioner, Mr. Zavadil was outside of Minnesota entirely on December 20, 21, and 24. But according to the large-format calendar produced for the first time during the April 2014

(Footnote continued on next page.)

54

fact that the Zavadils spent significantly more time in Minnesota (allegedly the domicile they had

abandoned) than in Nevada (allegedly the domicile they had adopted) is evidence that the

Zavadils did not intend to abandon their Minnesota domicile.

The Zavadils argue that this factor "reflects a concern for where taxpayers are located

when they are at leisure," in contrast to other factors "concerned with where the taxpayers are

located when they are at work." Zavadils' Post-Trial Br. 21. More specifically, the Zavadils

urge us to parse days spent in Minnesota according to "[t]he reason the taxpayer is within a

specific jurisdiction." Zavadils' Post-Trial Br. 21; see Minn. R. 8001.0300, subp. 3 (considering

(Footnote continued from previous page.) deposition, Mr. Zavadil spent December 20, 21, and 24 in Minnesota. Bruggeman Aff. (filed July 2, 2014) Ex. 7. If true, Mr. Zavadil spent more than 183 days in Minnesota in 2006. See Minn. Stat. § 290.01, subd. 7(b). Accordingly, we allowed the parties to introduce other evidence at trial of Mr. Zavadil's whereabouts on December 20, 21, and 24, 2006.

During trial, Mr. Zavadil identified the large-format 2006 desk calendar maintained by his secretary as her ''working calendar." Tr. 987-88; Ex. 1. In arguing for the admission of the large-format 2006 desk calendar into evidence, the Zavadils' counsel characterized it as "a record kept in-contemporaneous record in connection with ... both [Mr. Zavadil's] personal business and his business for the company." Tr. 989. On that basis, the large-format 2006 desk calendar was received into evidence as Exhibit 1. Tr. 989.

The following day, however, Mr. Zavadil disavowed Exhibit 1. Tr. 1137. Mr. Zavadil now maintained that Exhibit 1 (the large-format 2006 desk calendar) was "not [his] calendar" and that was why he had not produced it in discovery. Tr. 1137. Mr. Zavadil claimed that the meetings on the 2006 calendar "could be for anyone" and the locations listed on the calendar "could be anyone's location." Tr. 1137. Instead, Mr. Zavadil claimed that "his" calendar was the one submitted to the Commissioner in discovery. Tr. 1137. But it is clear to this court that none of the handwriting on the calendar submitted to the Commissioner in discovery and to this court is Mr. Zavadil's.

We are troubled by the Zavadils' contradictory testimony concerning the calendars submitted to this court. Ultimately, however, the Zavadils produced sufficient documentation, and the testimony of Michael Depree (with whom Mr. Zavadil spent Christmas Eve 2006 in North Dakota), to establish that Mr. Zavadil was not in Minnesota on December 20, 21, or 24. We therefore find that Mr. Zavadil spent only 182 days in Minnesota in 2006.

55

"percentage of time (not counting hours of employment) that the person is physically present in

Minnesota and the percentage of time (not counting hours of employment) that the person is

physically present in each jurisdiction other than Minnesota"). According to the Zavadils,

because Mr. Zavadil "traveled to Minnesota primarily for work reasons," Zavadils' Post­

Trial Br. 21, the time spent by Mr. Zavadil in Minnesota (182 days in 2006, according to the

parties' stipulation) actually weighs in favor of domicile in Nevada, Zavadils' Post-Trial Br. 22.

The Zavadils also contend, however, that even though Ms. Zavadil "traveled to Minnesota

primarily for personal reasons," the time she spent in Minnesota (180 days in 2006, according to

the parties' stipulation) also weighs in favor of domicile in Nevada, because Ms. Zavadils' visits

to Minnesota included settling her mother's estate and preparing for the wedding of one of the

Zavadils' sons. Zavadils' Post-Trial Br. 21. We decline the Zavadils' invitation. On this factual

record, we simply have no factual basis-beyond the Zavadils' bald assertion that Mr. Zavadil is

always working-on which to find why either of the Zavadils was in any particular jurisdiction

on any particular day. Nor have the Zavadils presented any legal justification for excepting Ms.

Zavadil's travels.

I. Other considerations.

The Zavadils have no family in Nevada and, at the time they decided to build a house

there, no other connection to the state. In contrast, two of the Zavadils' sons live in Minnesota.

Moreover, Ms. Zavadil is part of a large extended family, which gathers during the summer for a

week and over the holidays. Tr. 613, 367 (Ms. Zavadil testifying that her friends and family

were "home in the summer" in Minnesota). See Larson, 824 N.W.2d at 332. The Zavadils'

extensive family connections to Minnesota are evidence that they did not change their domicile.

56

Events occurring after the tax years at issue are further evidence that the Zavadils did not

change their domicile to Nevada. See Larson, 824 N.W.2d at 332-33 (indicating that it is proper

to consider events that occur after the taxpayer's physical move to another state). In 2007, the

Zavadils put the Nevada house up for sale and moved back to Minnesota. Mr. Zavadil began to

draw a salary from ASB and ultimately retook the reins of the company. Stip. ~1 8, 10.

Similarly, Ms. Zavadil canceled the stock purchase agreement by which she had sold her interest

in American Diversity and retook the reins of that company. Tr. 1169-70. In the two years

leading up to its sale in late 2011, the Zavadils spent only two weeks at the Zephyr Cove house.

Tr. 1043.

IV. EVALUATION OF THE ZAVADILS' DECLARATIONS

We turn to consider the Zavadils' declarations, and the sincerity of those declarations.

A. Present status of former living quarters, i.e., whether it was sold, offered for sale, rented, or available for rent to another (Factor G); Whether homestead status has been requested and/or obtained for property tax purposes on newly purchased living quarters and whether the homestead status of the former living quarters has not been renewed (Factor H).

In judging the sincerity of the taxpayer's claims of nonresidency, we consider the status

of the taxpayer's living quarters and the taxpayer's statements regarding those living quarters.

After the Zavadils' purported move to Nevada, they nevertheless continued to

lease 19752 Halwood Road in Glenwood. See Tr. 900 (Mr. Zavadil testifying that he transferred

the property from his name back to Zavadil Limited Partnership because the couple's lease

payments covered the property's expenses). Zavadil Limited Partnership did not list the property

at 19752 Halwood Road for sale until the spring of 2007, see Ex. J94, more than a year after the

Zavadils were ostensibly no longer living there (and a year after the later of the two years at issue

here).

57

In explaining why the property was not listed for sale in November 2005, the Zavadils

contend that the property was still under construction, and that construction was not complete

until sometime in 2006. Zavadils' Post-Trial Br. 13. We accept the Zavadils' explanation.

Moreover, the Zavadils contend that the best time to list lakefront property for sale is the spring,

an explanation we also accept. Zavadils' Post-Trial Br. 13. And we accept that, given the

Zavadils' deteriorating financial situation, they would have sold the property on any reasonable

offer. Nevertheless, for our purposes the question is the status of the property during 2005

and 2006. On the Seller's Property Disclosure Statement dated March 28, 2007, the Zavadils

represented that the property had been "occupied . . . continuously for the past 12 months."

Ex. 194. This is evidence that the Zavadils intended the Nevada home to be nothing more than a

vacation home, and that the Zavadils remained domiciled in Minnesota.

The Zavadils emphasize that neither the property at 19140 Halwood Road nor the

property at 19752 Halwood Road was homesteaded, but the property in Nevada was. Zavadils'

Post-Trial Br. 11; see Ex. JIO (Declaration of Homestead for 442 Lakeview Avenue). As part of

the homestead declaration, Mr. Zavadil asserted that the property at 442 Lakeview Avenue was

his "principal dwelling" and that he "actually reside[d]" in the property on November 29, 2005.

Ex. JIO. Given that Mr. Zavadil was already contractually obligated to use 19752 Halwood

Road in Glenwood as his principal residence, and given that the Zavadils had represented to their

insurer that their occupancy of 19752 Halwood Road was "primary," we do not consider Mr.

Zavadil's homestead declaration conclusive evidence of a Nevada domicile. Rather, we consider

Mr. Zavadil to have simply declared the Zephyr Cove property to be one of his several

residences.

58

B. Whether an income tax return has been filed as a resident or nonresident (Factor 0) and whether the person has fulfilled the tax obligations required of a resident (Factor P).

In judging the sincerity of the taxpayer's claims of nonresidency, we also consider

whether the taxpayer claimed resident or nonresident status on her income tax returns, both filed

in Minnesota and elsewhere. See Ayeni v. Com~ 'r of Revenue, No. 8697, 2015 WL 496152,

at *7-8, 10-11 (Minn. T.C. Feb. 2, 2015).

In this case, the Zavadils were not required to declare their residency on their Nevada

state income tax returns, because Nevada does not have a state income tax. The Zavadils filed

their federal income tax returns using their Nevada address. Exs. J43, 44. The Zavadils filed

their 2005 Minnesota income tax return using their Nevada address, and claiming residency only

between January 1 and October 31, 2005. Ex. J43, at Sch. MlNR. The Zavadils filed their 2006

Minnesota income tax return claiming Nevada residency for the entire year. Ex. J44, at

Sch. MlNR. The Zavadils' income tax filings are consistent with their claims of residency. Cf

Ayeni, 2015 WL 496152, at *10-11 (noting that the taxpayer's claims of residency were

inconsistent with her income tax filings).

C. Address where mail is received (Factor V).

Mail could not be delivered directly to the Zavadils' house in Nevada. Stip. 1 45. In

November 2005, the Zavadils obtained a post office box at the Zephyr Cove Post Office.

Stip. 146. The Zavadils instructed numerous entities to change their mailing address to Zephyr

Cove. See Ex. J42. These declarations are, without more, evidence that the Zavadils intended to

establish a new domicile in Nevada.

But the Zavadils continued to receive important communications in Glenwood. For

example, the Zavadils' accountant left correspondence for them with Mr. Zavadil's secretary at

American Solutions for Business. Payments to Ms. Zavadil under the January 2006 purchase of

59

Ms. Zavadil's stock in American Diversity Solutions for Business were to be made to 19752

Halwood Road. See Ex. JS. The October 31, 2006 quit claim deed by which Zavadil Limited

Partnership transferred 19140 Halwood Road to Mr. Zavadil prescribes that tax statements for

the property be sent to Mr. Zavadil's post office box in Glenwood. Ex. J15. Similarly, the

December 5, 2006 quit claim deed by which Zavadil Limited Partnership transferred 19752

Halwood Road to Mr. Zavadil prescribes that tax statements for the property be sent to Mr.

Zavadil in Glenwood. Ex. J21. The February 2006 insurance policy covering Mr. Zavadil's

many watercraft lists his address as 19752 Halwood Road. Ex. J37. We note that these

documents were prepared after (and in some circumstances, well after) the Zavadils claim they

had left Minnesota for good. 19 There is no evidence in the record before us that the Zavadils

instructed the Glenwood post office to forward their mail to Nevada, and we therefore assume

that the Zavadils continued to actually receive mail at 19752 Halwood Road.

Moreover, even with the changes of address, the Zavadils continued to receive their mail

in Glenwood. Although the Zavadils rented the largest post office box available, the box filled to

overflowing when the Zavadils were away from Nevada, which was frequently. Tr. 969; see

Stip. ~ 73 (the parties agreeing that Mr. Zavadil was in Nevada in 2006 for only 82 full days

and 28 partial days, and that Ms. Zavadil was in Nevada in 2006 for only 97 full days and 21

partial days). The Zavadils engaged a commercial service to collect their mail periodically and

forward it to Mr. Zavadil's secretary at American Solutions for Business in Minnesota. Tr. 970.

Routing one's mail to a new address while continuing to physically receive it at the old address

does not indicate that one has established a new domicile.

19 Tax statements on the Zephyr Cove property were to be sent to the Zavadils in Nevada. Ex. J103, at 15 (mortgage prepared by Wells Fargo in Minneapolis).

60

Zavadil Development, Inc., and Zavadil Limited Partnership also continued to receive

mail at the Glenwood Post Office, where it was collected by employees of American Solutions

for Business and delivered to Mr. Zavadil's secretary. Stip. ~ 47. There is no evidence in the

record before us that Mr. Zavadil' s secretary forwarded that mail to Mr. Zavadil in Nevada. To

the contrary, Mr. Zavadil "would pick the mail up from his secretary when he was in

Minnesota." Stip. ~ 4 7. That the Zavadils continued to receive their mail in Minnesota is

evidence that the Zavadils remained domiciled in Minnesota.

D. Location of jurisdiction from which unemployment compensation benefits are received (Factor X).

Neither of the Zavadils sought or received unemployment compensation benefits during

the years at issue here. Stip. ~ 82.

E. Location of schools at which the person or the person's spouse or children attend, and whether resident or nonresident tuition was charged (Factor Y).

We consider the schools attended by the taxpayer and the taxpayer's family and,

particularly, whether resident or nonresident tuition was paid consistent with the taxpayer's

claim of domicile. In this case, the Zavadils' three children are all adults and did not attend

school during the years at issue.

F. Statements made to an insurance company, concerning the person's residence, and on which the insurance is based (Factor Z).

The Zavadils insured the property at 19752 Halwood Road in Glenwood through Owners

Insurance Company before, during, and after the years at issue. Exs. J67-J76. On the July l,

2003 initial application for coverage, Larry Zavadil represented to the insurer that his occupancy

of the property would be "primary," as opposed to "secondary" or "seasonal." Ex. J67. The

insurer continued to insure the property as the Zavadils' "primary" residence between 2003

and 2009. Exs. J68-J76. There is no evidence in this record that the Zavadils ever altered this

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information and, in fact, the Zavadils benefited from the representation. See, e.g., Luce v.

Dorchester Mut. Fire Ins. Co., 105 Mass. 297, 301 (1870) (affirming the admission of testimony

"that it was the custom of insurance companies generally to charge extra premiums upon

dwelling-houses intended or known to be unoccupied").20 The Zavadils' representations to their

insurer are evidence that they remained domiciled in Minnesota.

The Zavadils contend otherwise, noting that effective December 15, 2005, they were no

longer named insureds on 19752 Halwood Road. Zavadils' Post-Trial Br. 22; see Ex. J71. On

the technical point, the Zavadils are correct: effective December 15, 2005, the only named

insured on the Owners Insurance Policy insuring 19752 Halwood Road was "ZLP Partnership."

Ex. J71. But we give this fact little weight, considering that the named insured continued to

receive a "Mature Homeowner" discount based on Mr. Zavadil's age. See Exs. J71, J73, J74,

J75, J76. Moreover, under the Owners Insurance policy the Zavadils insured page after page of

scheduled personal property (such as antiques and jewelry) in which the named insured ("ZLP

Partnership") had no apparent interest. See, e.g., Ex. J71.

A basic requirement for all types of insurance is that the insured have an interest at risk. That is the insured must stand to suffer financial loss or tangible deprivation if an insured event occurs. If the insured has no interest in the subject of a policy, the insurance agreement may be rendered void and unenforceable.

20 The Zavadils' long-time insurance agent testified that the Zavadils' insurer "does give a discount for secondary occupancy" and, had the occupancy been changed from "primary" to "secondary," the Zavadils would have paid less in premiums. Tr. 667-69. But the agent also testified that a "primary" dwelling is one that is "not a townhome, condo, or cabin." Tr. Vol. VII, p. 66; see Ex. J67 (homeowners insurance application indicating choices of occupancy as primary, seasonal, secondary, and vacant/unoccupied). We conclude that the agent was confused on both points.

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Leo P. Martinez, Marc S. Mayerson, and Douglas R. Richmond, New Appleman Insurance Law

Practice Guide 1-17 (2015). And, as we have noted, Owners Insurance continued to insure the

property as a "primary residence." 21

G. Other declarations

Mr. Zavadil had served on the Pope County Planning and Zoning Commission and on the

Minnesota State Colleges and Universities Trustee Advisory Council, which screens candidates

for the MNSCU Board of Trustees. Tr. 974. Mr. Zavadil resigned from these positions.

Tr. 973-75.22 This is evidence that the Zavadils intended to change their domicile.

The Zavadils cite in their favor statements made to their many friends and business

associates that they were moving to Nevada. Zavadils' Post-Trial Br. 24-25. We do not doubt

the credibility of the Zavadils' friends and associates, but their testimonies are hardly

21 The Commissioner characterizes 19752 Halwood Road after December 15, 2005, as the "primary residence" of Zavadil Limited Partnership. Comm'r's Proposed Finding 107. Setting aside the question of how a partnership can have a "residence" (primary or otherwise), the Zavadil Limited Partnership agreement provides that the partnership's principal place of business is 19140 Halwood Road, "or such other place as the General Partners may from time to time determine." Ex. J6. Both before and after the Zavadils moved out of 19140 Halwood Road, the partnership appears to have used American Solutions for Business' post office box in Glenwood as its principal place of business. See, e.g., Ex. J14 (lease of Halwood Road, giving the address of "landlord" as P.O. Box 196), J18 (lease of 19752 Halwood Road, giving the landlord's address as P.O. Box 196).

22 At trial, the Zavadils' counsel touted the minutes of the Trustee Advisory Council announcing Mr. Zavadil's resignation as "very probative." Tr. 984-85; Tr. VII, at 8 (characterizing the minutes as "one of the best records of Mr. Zavadil's intent to move to Nevada"). We disagree. The minutes reflect that the chair of the council announced that Mr. Zavadil had resigned and was moving to the Lake Tahoe area, and nothing more. Ex. 14. In other words, in the absence of any showing that Mr. Zavadil had a duty to provide a truthful reason for his resignation (or any reason at all), the minutes establish only that Mr. Zavadil told the chairman of the Trustee Advisory Council, as he told many others, that he was moving to Lake Tahoe. As we have indicated, we give declarations made for the purpose of establishing domicile less weight than those made for unrelated reasons.

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conclusive.23 As we have indicated, we give declarations made for the express purpose of

establishing domicile less weight than those made under circumstances in which domicile was

not an issue, or when there is a duty to be truthful. Nor is it enough for the Zavadils to prove that

they told others that they intended to become Nevada residents: they must support that intent

with actions. "There is nothing more fundamental in the law of domicile than that two elements

must concur in order to effect a change of domicile. A person must first have the intent to

23 Many of the friends and business associates whose trial testimony was presented by videotape had previously submitted affidavits in support of the Zavadils' motion for summary judgment. See Brown Aff. (filed Nov. 14, 2013); Crowell Aff. (filed Nov. 14, 2013), Briggs Aff. (filed Nov. 14, 2013), Zagar Aff. (filed Nov. 14, 2013), Sigala Aff. (filed Nov. 14, 2013), Fagan Aff. (filed Nov. 14, 2013), Morrissey Aff. (filed Nov. 14, 2013), Martinson Aff. (filed Nov. 14, 2013), Wold Aff. (filed Nov. 14, 2013). At the start of each witness' testimony, the Zavadils' counsel placed the affidavit before the witness and asked that the witness identify it and indicate whether everything in the affidavit was true and correct. See, e.g., Tr. 23-24 {"Take a second to read through [the affidavit], and I'm going to ask you if everything in there is accurate as far as you recall?"), 119 ("are the statements contained in the affidavit true and correct to the best of your knowledge?"); 137 (''And is everything in your affidavit true and correct?"); 156 ("Is there anything in that affidavit that is incorrect or inaccurate or wrong?"). The affidavits themselves were marked as exhibits, but were not offered into evidence, during the witness' videotaped testimony.

Although there was no objection from the Commissioner to this procedure, we find it improper. Under Minn. R. Evid. 612, a witness may use a writing to refresh her memory while testifying. But there was no indication that any of these witnesses suffered from a memory lapse while testifying. In addition, the circumstances raised questions about who had drafted the various affidavits. For example, as we have noted, Ms. Zavadil's affidavit stated that she had maintained a calendar, but she did not recognize it. Another of the Zavadils' witnesses averred in his affidavit that he "believe[d] it was [the Zavadils'] intention to permanently reside in Nevada," Crowell Aff. (filed Nov. 14, 2013), 1 3, but testified at trial that he "didn't know they intended to move there." Tr. 110.

Under the circumstances, we would not have permitted any of these witnesses to have testified in open court from his or her affidavit, but because the witness's testimony was presented by videotape, we had no opportunity to so instruct counsel. In any event, the circumstances of the depositions go to the credibility of the witnesses and, ultimately, to the weight to be given to their testimony.

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change domicile, and next, that intent must actually be made effective by a physical act or acts."

Stamp, No. 2572, 1979 WL 1117, at *5 (Minn. T.C. June 27, 1979) (citation omitted).

The Zavadils contend that their statements to retired State Senator John Briggs, from

whom the Zavadils bought the land on which the house in Zephyr Cove was built, should be

given special weight because they would not have been able to purchase the land "without

expressly representing to Sen. [] Briggs that they intended to occupy it as their primary

residence." Zavadils' Post-Trial Br. 24. The record, however, is somewhat different. In support

of the Zavadils' motion for summary judgment, Senator Briggs averred that before agreeing to

sell to the Zavadils, he "wanted to know if they were going [to] live in the home or if they were

going to rent it out. I did not want to have a renter purchase the property," or "to have the owner

view the property as a business investment." Briggs Aff., 2 (filed Nov. 14, 2013). Moreover,

according to Senator Briggs, Mr. Zavadil "assured [him] they were buying as a retirement home

and not an investment property." Briggs Aff. , 3. Senator Briggs reiterated the point in his

videotaped trial testimony:

And part of the conversation we had was that I wanted to know whether Larry and Diane were going to live there or they were going to rent the property out, be there sometimes, rent it out. Renting was a big issue, a big no-no at that time.

And I made it very clear that I would in no way want to sell the lot next door to me, because we have zero lot lines over there, if somebody was going to just live there part-time and rent it out part-time.

Tr. 124.24 We find nothing in the record to indicate that Senator Briggs was willing to sell the

property only to someone domiciled in Nevada and nowhere else.

24 We note that, even if the Zavadils promised Senator Briggs in 2003 that they would be "permanent full-time residents" of Zephyr Cove, see Tr. 124-25, they hardly kept that promise. By the Zavadils' own admission, they spent no more than 118 days in Nevada in 2006. Stip., 73.

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V. CONCLUSION

As we have indicated, in evaluating a taxpayer's claim of changed domicile, no single

fact is conclusive. Nor is ''the sheer quantity of factors" weighing either in favor of or against an

individual's domicile. Dreyling, 711 N.W.2d at 495.

In this case, we agree that the Zavadils saw themselves enjoying the Zephyr Cove

property for many years to come, as evidenced by their careful forethought in the property's

design. But the Zavadils' actions do not indicate that the Zavadils intended the Zephyr Cove

property to be anything more than a vacation residence. The Zavadils' ties to Minnesota, both

social and economic, remained simply too strong during the audit period. See Stamp v. Comm 'r

of Revenue, 1979 WL 1117, at *7 (concluding that the taxpayer who "continued to maintain

'deep roots . . . embedded in the social and economic life of the old community" remained a

Minnesota resident).

Time and again, witnesses testified to the Zavadils' strong sense of family. See, e.g.,

Tr. 89 ("I think that being the family man that Larry is, that the family comes first."). Both of

the Zavadils' sons and their families, as well as the Zavadils' siblings, were in Minnesota. The

Zavadils spent holidays in Minnesota with their families, and with Ms. Zavadil' s siblings and

their families. In contrast, the Zavadils had no family in Nevada and, on this factual record, had

no friends or relationships with anyone in Nevada that extended beyond the completion of the

Zephyr Cove home. Cf Tr. 83-84 (Mr. Brown testifying that he and Mr. Zavadil went fishing

and played golf in Florida, and that the Browns and the Zavadils went boating), 395 (Ms. Zavadil

testifying that Mr. Zavadil fished with a group of friends in Florida and spent time together

during "happy hour"). Indeed, on this record we have no information about how the Zavadils

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spent their time in Nevada, and no evidence that the Zavadils had even begun to make a life

there.

Second, the Zavadils remained employed by, and actively involved with, American

Solutions for Business and American Diversity-both Minnesota companies-during the years

at issue. Mr. Zavadil remained actively involved with Zavadil Limited Partnership and Zavadil

Development, both of which had numerous ongoing projects in Minnesota requiring his

attention.

Third, personal involvement aside, the Zavadils' financial fortunes were inextricably

linked to the fortunes of American Solutions for Business, American Diversity Business

Solutions, Zavadil Limited Partnership, and Zavadil Development, Inc.-all Minnesota

companies-and remained so during the years at issue. As explained above, Mr. Zavadil

personally guaranteed the $8 million loan from Glenwood State Bank that provided part of the

funds needed to refinance the ESOP. American Solutions for Business continued to lease

properties from Zavadil Limited Partnership that, during 2005 and 2006, paid the partnership

more than $600,000 per year-some 60% of the partnership's total revenues. See Exs. 43, 44.

Ms. Zavadil received $300,000 per year from the sale of American Diversity Business, a

business itself inextricably tied to American Solutions for Business. Had any of these companies

failed, the Zavadils stood to lose millions of dollars. For that reason, the Zavadils remained

actively involved in all four companies during 2005 and 2006. Indeed, as those companies

faltered, the Zavadils returned to Minnesota and (with respect to American Solutions for

Business and American Diversity) to active involvement.

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We conclude that the Zavadils remained domiciled in Minnesota throughout 2005

. and 2006, and we affirm the Commissioner's order.

J.H.T.

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