Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York tax law.

Moving To a State With No Income Tax? There’s Way More To It Than “Paper” Changes and 183 Days

Case in point: this recent CNBC Op-Ed. At first glance, it’s a seemingly helpful tip sheet on how to make an audit-defensible move to a state like Florida. Unfortunately, like most of what gets published on this issue, it ends up taking the form of a “checklist.” But I can assure you, if you follow only the instructions in this article and you get audited by a state like New York, you are likely to be confronted by an auditor who has serious doubts about the validity of your move or your ability to prove that you did what the law requires to change your domicile.

I know, I know. Right about now, you’re wondering: “Who does this Andrew Wright think he is? And what makes him think he knows any better than the author of this op-ed?”

As a partner in the nationally-recognized Hodgson Russ LLP State & Local Tax Practice, I can tell you that the tips outlined in the CNBC Op-Ed, though helpful, don’t even scratch the surface of what is required to make the type of domicile change that an aggressive state like New York would respect in an audit. And, that’s really what matters right? Because in the context of an audit about your residency, if you can’t convince a Tax Department’s auditors of the validity of your change of residence, you are in for a lengthy and difficult battle.

Where I agree with the author of the op-ed is in his conclusion that “the most important thing to do is ensure your move is real and not just on paper.”

However, after making that statement, the op-ed’s author proceeds to outline 11 specific steps people should consider taking to demonstrate their move is “real.” Among those 11 most important steps are a number of “paper changes” to be made in your new home state, like: changing your driver’s license and car registration, registering to vote, filing a declaration of domicile, moving bank accounts and safe deposit boxes, declaring a change of address, changing legal documents (like wills and trusts) to reflect the new residence, developing local affiliations, and applying for a homestead exemption. In other words, eight of the 11 suggestions the author made after cautioning readers to ensure their moves are real (and not just on paper) were paper changes!

To be fair, the author did give three other suggestions to prove domicile in the new state.

The first—buy or lease residential property in the new state. I think most people moving to a new state would appreciate that having a place to live in the new state is a prerequisite to making that new place their primary home. In practice, however, it is simply not enough to rent or buy any property in the new state. After all, the vast majority of the people audited for residency changes in states like New York are high-income taxpayers who maintain residences in both their old state and new state. What’s much more important than just acquiring any old property in Florida is a careful analysis of the characteristics of that property, how it will be used, and your relationship to it, all compared to the residence you are leaving behind in your old state. And, of course, many of the people I advise on making a move from places like New York to Florida have owned a residential property in Florida for years before the move and won’t be making any change around their Florida property. What then?

The second—“log your travels” in order to ensure you spend at least 183 days outside your former home state. Though the author does qualify this advice by saying “limit return trips to your prior home,” advice like this is what perpetuates the broad misunderstanding that moving from one state to another just requires “six months and one day” in the new state. In truth, when a state like New York chases a former resident, they expect to see a much more compelling comparison of time than 185 days in Florida and 180 days in New York. How much more time in Florida and how much less time in New York is required is not a question that can be answered generally for all taxpayers. Rather, because domicile is a subjective test that is all about balancing a bunch of different factors, the question of how one must spend his or her time in order to establish a change of domicile cannot be answered in a vacuum or in relation to a 183-day threshold.

The final piece of advice—“establish a new home base.” This, my friends, is quite possibly the most useful piece of information in the article. When I advise a client on changing their domicile from New York to Florida, all of the nuance of that advice is tied up in what it means to “abandon” the old domicile and “establish a new home base” in the new location. And, frankly, that is not the kind of advice that can be found in a generic checklist.

When I talk to new clients about this kind of move, I will spend 60-90 minutes talking about their facts and circumstances before I ever even discuss the “paper” changes in the new state. And, when I do get there, my advice is always the same: everyone must do the paper changes, but we can’t put any real weight on them. When a taxpayer does the paper changes in Florida, a New York residency auditor will largely dismiss those actions. They are, of course, only paper changes—anyone can do them! If a taxpayer fails to make the paper changes, a New York residency auditor will think it’s a huge deal and use it to question that person’s commitment to Florida. How serious can you be, an auditor will suggest, if you didn’t even do the easy stuff!

So yes, some of the advice in the CNBC Op-Ed is useful. However, two take home points here. First, don’t rely on articles like this to plan your change of domicile. If changes of domicile could be proven by more than 183 days out of New York and a bunch of paper changes, I wouldn’t have a job. Get advice from an actual tax professional, especially if you are the type of person who is likely to be audited for your move by your former home state. Second, the changes one must make to have a compelling change of domicile are decidedly not the paper changes. So, if you’re going to make this kind of move, you need to prioritize the changes that are most important to those who audit residency changes. And for this, I suggest you skip the internet and call a tax attorney.

But hey, what do I know?  I just help people navigate residency changes and handle residency audits for a living.

(For more information, contact Andrew Wright (716.848.1254) or visit the Hodgson Russ LLP Tax Residency Practice page.)

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