Establishing Residency for State Tax Purposes

April 25, 2017
Have you been contemplating moving to another department of state with lower taxes ? Your go could lower your state tax placard, but you want to make certain to establish that the new state is your place of legal residency ( besides known as your “ domicile ” ) for state of matter tax purposes. otherwise, the honest-to-god state of matter could come after you for taxes after you ’ ve moved. In the worst-case scenario, your newfangled state of matter could expect to get paid, excessively. here ’ s what you need to do to establish residency in the newly state — and why moving your favored could be a deciding factor .
Recognize the Significance of Establishing Domicile
If you make a permanent act to a new express, it ’ mho important to establish legal dwelling there if you want to escape taxes in the state you left. The claim definition of legal domicile varies from department of state to state. In general, however, your domicile is your situate and permanent home location and the target where you plan to return, even after periods of residing elsewhere.

Because each state of matter has its own rules regarding dwelling, you could wind up in the worst-case scenario of having two states claiming you owe express income taxes. That could happen when you establish domicile in the new country but don ’ deoxythymidine monophosphate successfully end dwelling in the previous country .
furthermore, if you die without clearly establishing reside in just one state of matter, both the previous and new states may claim that your estate owes income taxes and any country death taxes. indeed, it ’ randomness critical to know the rules that apply in your new and old states — and follow them .
How to Establish Domicile in a New State
hera are some actions that can help you establish domicile in a new state :

  • Keep a log that shows how many days you spend in the old and new locations. (You should try to spend more time in the new state, if possible.)
  • Change your mailing address.
  • Get a driver’s license in the new state and register your car there.
  • Register to vote in the new state. (You can probably do this in conjunction with getting a driver’s license.)
  • Open and use bank accounts in the new state. Close accounts in the old state.
  • File a resident income tax return in the new state, if it’s required. File a nonresident return or no return (whichever is appropriate) in the old state.
  • Buy or lease a residence in the new state, and sell your residence in the old state or rent it out at market rates to an unrelated party.
  • Change the address on important documents, such as passports, insurance policies, and wills or living trusts.

The more prison term that elapses after you move to a new state and the more steps you take to establish dwelling in that state, the intemperate it will be for your old state to claim that you ’ re inactive a nonmigratory for tax purposes .
Don’t Forget the Dog

In the facts underlying a late decision by the New York Division of Tax Appeals, the taxpayer lived in New York City until he took a job as head executive officer at, which was based in Dallas, Texas. ultimately, the court determined that he was legally domiciled in Texas, because that ’ second where he kept one of his nearest and dearest possessions — his cad. ( In re Gregory Blatt, N.Y. Division of Tax Appeals, No. 826504, Feb. 2, 2017 )
The taxpayer ’ s initial agreement with called for him to work in New York City. But in 2009, he decided to lease an apartment in Dallas and workplace from the Dallas agency. His employment contract was amended to show that his chief position of employment was Dallas. He kept ownership of an apartment in New York City, although it was listed for sale after he agreed to work forbidden of Dallas. He besides kept a boat in New York, which he used while vacationing in the Hamptons .
By the jump of 2011, the taxpayer had terminated his use with and moved back to New York City. later in 2011, he sold his apartment in New York City and moved to the Hamptons .
For 2009 and 2010, the taxpayer claimed to be domiciled in Texas and, therefore, filed New York nonresident/part-year house physician income tax returns for those two years. After being audited by the New York Division of Taxation, he was charged for express and city income taxes, concern and penalties totaling $ 430,065 on the grounds that New York City was his legal dwelling for the entire prison term he was employed by .
fortunately, the taxpayer was able to convince the New York Division of Tax Appeals that his dwelling for 2009 and 2010 was, indeed, Dallas. The following factors helped persuade the court to accept Dallas as the taxpayer ’ mho reside :

  • He started going to the gym in Dallas, which he had never done in New York,
  • He had his prescriptions filled in Dallas, and
  • He obtained a Texas driver’s license and was registered to vote there.

As it turned out, the lean indicate came when the taxpayer moved his dog to Dallas in November 2009. The significance of this action was documented in an e-mail the taxpayer sent to a supporter in which the taxpayer stated that moving the dog was the final step that he hadn ’ thymine previously been able to come to grips with. By taking the frump to Dallas, the taxpayer demonstrated that Dallas was officially his newly home plate. The New York Division of Tax Appeals agreed, noting that moving items that are “ near and dear ” tends to demonstrate a person ’ s purpose to change domicile.

Consult a Tax Pro
Planning to move to a newly submit with lower taxes ? Unless you establish reside in the new state and end residency in the honest-to-god one, you could come under examination by state tax authorities. Your tax adviser can explain the rules in your old and newly states and how to avoid potential pitfalls .
© 2017

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Category : Finance

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