Demonstrating your residency in a new state is often more complicated than people assume, especially when you retain your original home in your previous state of residence. States like Florida that have no state income tax are attracting many residents from high-tax states like New York, New Jersey and California. People often think that living in a state for at least 183 days will be enough to prove they have changed their domicile. Often, though, it takes much more.
State auditors are increasingly scrutinizing personal records, including credit card transactions, cell phone records and checking account statements, to determine if you’re still living in the previous state. If they see payments to doctors’ offices located in your previous state, for example, they can take that as evidence that you haven’t changed your state of domicile. Similarly, if bank and credit card receipts show that you were in your old state after returning from a vacation, they may conclude that your previous residence is really the one you still consider home. State auditors know that people usually want, after any time away, to return to the familiar surroundings that feel like home.
Changing your driver’s license and voter registration are two important first steps to establish your new place of residence, but those actions may not be enough. You’ll want to find new doctors and make sure your memberships in gyms or country clubs switch to facilities in your new state. You may also want to shift where you attend religious services and make sure your donations to a place of worship are in your new state.
The rules and practices of auditors vary state by state. A new Florida resident who moved from New York, for example, may have to comply with different rules from those a new neighbor who just came from North Carolina must observe.
For those still working, the location of their employment will be considered, as well. For example, if someone plans to sell their business and rents an apartment in their new state with a lease that exceeds six months, that may not prove residence if they spent more than 183 days of the year back in their previous state, overseeing the transition of the business. If that occurred, the person would still owe income taxes in their previous state.
Those who engage in fully remote work can’t assume they’ll owe taxes only in the state where they now reside. For those whose employers are based in New York, for example, a remote worker can only avoid New York state income taxes if the remote employment does not meet a “convenience of the employer” test. If the employee continues to use their New York office phone number and mailing address, for example, that can demonstrate the remote work is for the convenience of the employee and not for an essential business purpose. In these cases, because the remote work arrangement is entirely for the worker’s benefit, income taxes may still be due in New York where the employing organization is located.
It’s not only high net worth individuals who are being scrutinized. A number of our clients have adult children whose income levels are much more modest, but they’re also getting residency notices after a move to a new state. With the ability to do automated searches, the state auditors can identify many more people whose status after a move, in their view, warrants scrutiny.
Teaming with experts and keeping detailed records, including receipts in digital or traditional paper formats, can make an audit less painful and increase the odds that you can prove your new state is truly your home.
Working with an experienced advisor who understands your unique situation, as well as the state-taxing authorities’ point of view, can be a huge advantage. Together, you can discuss and implement a reasonable course of action with supporting documentation.
Kathleen Braica, CPA, is a partner at Anchin who leads the firm’s Florida practice. She is an experienced tax and accounting specialist who is deeply rooted in the Florida market. She specializes in the complexities that are unique to high-net-worth individuals and families, notably trusts and estates, and the strategic planning that they require. Braica and Anchin’s Florida team help clients develop gifting and income tax planning strategies to minimize tax exposure and have experience representing clients before the IRS.