It’s common today for people to cross state lines to go to work, to temporarily relocate to another state for work or medical treatment, or to have a second or even a third home.
Unfortunately, what’s not uncommon is for all of these states to simultaneously lay claim to your income tax dollars.
Residency and Domicile
Although we may think of home as where the heart is, the state taxing authorities define your tax home based upon a variety of factors. Your “domicile” is what most of us think of as “home.” It is the “place of a person’s permanent home to which he or she intends to return to whenever absent from the state for a period of time.” This means that you can remain domiciled in a jurisdiction even after you’ve left if you have maintained sufficient links with that jurisdiction or have not displayed an intention to leave permanently (i.e., if you live in a different state but have not yet formed an intention to remain there indefinitely).
A “residence” is simply a place to live. Many states simply count the number of days you are present in their state. If it’s greater than 183, you are a resident. Other states require both residency and domicile. Thus, dual state residency (regardless of where you consider home) can result in dual taxation.
For states that count you as a tax resident if you are present greater than an allotted number of days, avoiding being found to be a resident is pretty simple – don’t be in the state for that number of days and keep proof.
For states that look to whether you are a domiciliary, there are several common factors. Evidence of your domicile includes:
- Location of employment
- Classification of employment as permanent or temporary
- Location of business relationships and transactions, such as active participation in a profession or trade or substantial investment in or management of a closely held business
- Serving on the board of directors for a business or charity
- Living quarters – whether your former living quarters were sold, rented out, or retained, and whether you leased or purchased real property in your new location
- The amount of time spent in the state versus amount of time spent outside the state
- State where you’re registered to vote
- The state of issuance of a driver’s license or fishing/hunting permits
- Location of the school your child attends
- Memberships in country clubs, social, or fraternal organizations
Changing your residence takes planning and is a proactive process. Careful documentation is key:
- Note the date of your change of residence.
- Document in writing the reason for the change in residence, which shows basis and intent.
- Obtain a driver’s license in your new state.
- Register your vehicle in your new state.
- File a resident income tax return in your new state.
- Revoke any homestead claims or election on your home in your former state and file similar documents in your new state of residence.
- Register to vote in your new state.
- Open bank or brokerage accounts in your new state.
- Replace involvement with business, charities, and other organizations in your former location with activity in such organizations in your new residence.
- Change the mailing address for all bills, banks, insurance, doctors, etc. to your new state address.
- Keep a calendar of when you are in your former state versus when in your new state or states.
- Retain airplane tickets, credit card statements, hotel records, etc. that will support your calendar.
- Change professional licenses to your new state.
- Establish relationships with new doctors, dentists, accountants, attorneys, etc.
If you have previously filed a tax return in your current state but are changing your residence, you must observe the formalities of making a change of residence and retain all documentation you may need to prove your new residency. There are many documented cases of states successfully asserting tax claims on former residents’ income. Check with your financial advisor today to make sure you’re covered.
Christopher P. Van Slyke, CFP®
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