January 8, 2020
Authored by: Stacie J. Rottenstreich and Karin Barkhorn
As we deal with the first snowfall of the season in New York, many New Yorkers may think about picking up and moving to Florida to avoid the cold winter. Many New Yorkers also think about making Florida their tax home, to take advantage of the favorable estate and income tax laws there. Florida has no personal income tax and no state estate tax, whereas New York currently has an income tax rate as high as 8.82% and estate taxes on estates over $5,850,000.00 at a rate as high as 16%. President Trump has recently publicized his decision to make such a move. But the switch to make Florida one’s legal domicile for tax purposes is not as easy as one might think.
For income tax purposes, if you start off as a New Yorker and file New York state resident income tax returns, the New York State taxing authorities are not going to let you off the hook so easily. The burden of proof to show you have changed your domicile is on you, not on New York State who wants you to remain a New York domiciliary.
In addition to taxing people who are domiciled in New York State, New York taxes individuals as residents if they have a permanent place of abode in New York and spend 184 days or more in New York. So the first order of business is to spend more than half the year outside of New York State. This can be important because a New York resident or domiciliary is taxed on income from whatever source, but a nonresident is subject to tax only on New York source income.
Many people think this is all you have to do in order to avoid New York State income tax. However, this is the bare minimum. To change one’s domicile from New York, one needs to have a residence in a new location along with the intention to make the new residence a “permanent home”.
Domicile is a factor of intention. One is a New York domiciliary for estate and income tax purposes if New York is his or her permanent home and he or she has intention of returning there. There are five primary factors that New York State auditors look at to evaluate if one has changed his or her domicile out of the state for income tax purposes.
- HOME A taxpayer has to, at minimum, have a new home outside of New York State. It is harder for a taxpayer to prove a new domicile if he or she retains a New York home, particularly if the New York home’s value exceeds the new home.
- ACTIVE BUSINESS INVOLVEMENT A taxpayer’s employment or active participation in a New York trade, business, occupation or profession, as well as his or her investment in, and management of a New York closely held business is a factor which strongly negates an argument that his or her domicile is being moved out of New York State.
- TIME As indicated above a taxpayer has to spend less than 184 days in New York State to assert that his or her domicile is no longer in New York. But in addition to this, the taxpayer needs to spend more time in the newly asserted domicile than in New York. For taxpayers who travel frequently, this can be difficult. Let’s say you are only in New York 150 days, and assert Florida is your new home. But you are only in Florida for 120 days. The other 95 days you are travelling to other locales. This can be problematic.
- ITEMS NEAR AND DEAR The things most important to you are usually kept in your permanent home. If a taxpayer keeps items of significant sentimental factor, such as family heirlooms, artwork, collections or pets, in New York State, it is harder to argue that New York is not meant to be your permanent home
- FAMILY CONNECTIONS Having a spouse or minor children remain in New York State is another negative factor to have if trying to prove you are not a New York domiciliary.
In addition to the primary factors, there are other facts, subordinate as they may be, that can be looked at by New York State to determine if one has given up his or her New York domicile. These factors include such things as
- Where does the taxpayer receive financial correspondence?
- Where does the taxpayer keep a safe deposit box?
- Where does the taxpayer have a driver’s license and where is his or her car registered?
- Where does the taxpayer vote?
- Where does the taxpayer list his or her domicile on his or her Will and other legal documents?
One can successfully change domicile from New York State to Florida or another income tax favorable state. New York State, however, is likely to try to find connections and factors which show this is not the case. If you are thinking of making the change, make sure you have as many factors as possible on your side.