Changing Your Residency Status: Home Is Where the Domicile Is
Florida has maintained its sanctuary status for decades. As a respite, Florida has long been a destination of choice not only for vacationers, but for retirees drawn by the state’s warmth and many lifestyle advantages as well as those seeking hospitable environs for a second home. Last year’s pandemic, however, pushed those with secondary homes in Florida, as well as those seeking to flee less-than-attractive Northeast climates, to seriously consider a permanent change in their residency status. Excellent weather aside, Florida also is one of the few U.S. states that does not impose individual state income tax.
The cap on state and local tax (SALT) deductions enacted by the Tax Cuts & Jobs Act (TCJA) of 2017, bolstered by the COVID remote work mentality, has been a major influence in the southern migration. States imposing high personal income and corporate taxes are losing population to such states as Florida, Tennessee, and Texas. But while these states are enjoying the inflow of new residents who will patronize their restaurants and retailers and staff their businesses with local hires, state auditors in jurisdictions that are losing out are not going down without a fight.
To reap the full benefits of a move, careful consideration must be given to breaking residency – or domicile — in a high-tax jurisdiction.
At the highest level, domicile generally refers to the place the taxpayer intends to make his or her permanent residence. A taxpayer can only have one domicile.
New York uses five primary factors to determine a taxpayer’s domicile: home, business involvement, time, items near and dear, and family connections. There are many secondary considerations as well. It is important to keep contemporaneous records to assist in establishing a change of domicile, as the burden of proof will be on the taxpayer.
Statutory residency is generally determined based on the number of days spent in a particular state. In New York, a statutory resident is a taxpayer who maintains a permanent place of abode and spends more than 183 days in the state. Spending only a portion of the day in another state is considered to be a full day for tax purposes. Certain vacation homes can also be considered permanent abodes. Taxpayers must maintain location records to satisfy the IRS’ Day Count Test.
Marcum’s State and Local Tax practice and Family Office practice are coordinating efforts to assist individuals and businesses relocating to more favorable state tax jurisdictions. Both groups can assist in collecting and documenting support for a change in residency and advising clients on requirements for breaking residency.