Court reinstates tax evasion charges 2005 ruling in favor of 2 Maine Maritime Academy graduates overturned

PORTLAND – A sharply divided Supreme Judicial Court reinstated tax evasion charges Thursday against two merchant mariners, setting aside a judge’s ruling last summer that the definition of residency in Maine’s tax law was unconstitutionally vague.

The 4-3 ruling allows the state to move forward with its case against Maine Maritime Academy graduates Michael Falcone and James Jannetti, who were indicted in 2004 for tax evasion and for failing to pay state income taxes between 1997 and 2002.

Superior Court Justice Roland Cole threw out the charges after defense lawyers argued that the state’s definition of “domicile” was unclear, making tax decisions difficult for merchant mariners who spend months at sea and divide their time between different states while ashore.

The state appealed Cole’s ruling, saying the importance of the issue demanded a review by Maine’s highest court.

Elements of domicile, as interpreted by the court, include the place where a person has his home or, when absent, where he intends to return.

The majority opinion, written by Justice Donald Alexander, said that while there may be circumstances in which the common law definition of domicile lacks specificity, that does not justify a finding that the statute is unconstitutional on its face.

“Read in the context of the tax code and two centuries of usage, the term ‘domiciled’ is not unconstitutionally vague,” the court concluded.

In a dissenting opinion, Justice Warren Silver said the inadequate definition forces people to guess at its meaning and risk imprisonment if they guess wrong. Basing criminal sanctions on such a vague definition, he wrote, violates the defendants’ right of due process guaranteed under the 14th Amendment.

Other states provide taxpayers with a list of factors used to determine domicile, but Maine offered no guidance in either its statutes or regulations, he wrote.

As part of a criminal investigation six years ago, Maine Revenue Services targeted potential income tax cheats who claimed they lived in New Hampshire and other states without an income tax.

The agency subpoenaed records of the academy’s alumni association, which represents nearly 7,000 graduates. The state then brought more than two dozen criminal charges against graduates or family members.

Many of those charged accepted plea agreements, and as of three years ago more than two dozen merchant mariners had collectively paid more than $1.38 million in restitution.

Assistant Attorney General William Baghdoyan, who argued the case before the law court, hailed the ruling as “a significant point of law in favor of the state.” He said he believed that the statute was “perfectly clear.”

“This was their big legal issue and they’ve lost,” he said of Falcone and Jannetti, who now must decide whether to go to trial or enter into plea negotiations.

The prosecutor said that while merchant mariners represent the largest occupation in domicile-related tax cases, charges have also been brought against airline pilots, computer consultants and people in other lines of work.

“There are many people in many different occupations who have set up what are effectively fraudulent residences in other states – primarily Florida and New Hampshire – but they actually reside in Maine,” he said.

During the period in question, according to Baghdoyan, Falcone lived in Bridgton and Jannetti in Old Orchard Beach, and neither had a residence of their own anywhere else.

Thimi Mina, the Portland attorney who represented the two men, said he was disappointed at the court’s decision but hoped that the state would not try to prosecute his clients.

“You’ve got eight different judges now who have looked at the statute and four have said it’s unconstitutional,” Mina said. “When you start charging people with felonies, you’d like to have a brighter line of what is a felony and what isn’t.”

Mina declined to discuss specifics of the case and said he would be talking with his clients before deciding on their response.

A few hundred domicile-related cases have been at issue in Maine over the past five years or so, according to Jerome Gerard, acting executive director of Maine Revenue Services.

The cases involve a total of “perhaps a few million dollars” on a revenue base of $1.2 billion. “We’re not talking about a very large subgroup of the population,” Gerard said.