What you Need to Know
The more there is to gain from moving out of a high-tax state, the more careful you should be about making the move. There are many factors and misconceptions on changing domiciles – the most common of which is the 183-day myth. Many individuals believe that they only need to spend more than half the year (183 Days) in their new state to claim residency, and correspondingly non-residency in their old state. However, this is not the case and there are a lot of other factors that need to be considered during your moving period. Let’s review:
The Domicile Test
Under New York State’s rules, residency status is based upon where a taxpayer maintains his primary domicile, with “domicile” being defined as someone’s permanent/primary home. A taxpayer is only permitted to have one domicile at a time. There are 5 factors used to test this which overall indicate a change in the taxpayer’s domicile:
- Home
- A number of questions are used by auditors to determine whether the taxpayer behaves as though the non-New York residence is their home. For example, is one residence owned or rented? What are the value and size differences between the New York home and the non-New York home? What actions did the taxpayer take to remove himself or herself from the old community? Has the taxpayer established roots in the new community? Where does the family spend holidays and special occasions?
- Business
- This factor considers the pattern of employment and the compensation derived from that employment. It will also examine the taxpayer’s active business involvement other than employment. Ongoing participation in decision-making and frequent communication with a business, even after official retirement, can be viewed as the most significant evidence of one’s domicile.
- Time
- The “time” factor addresses where the taxpayer spends the majority of his or her time. If the taxpayer does not spend more time in her claimed “home” than in any other location, it may not be their domicile. This is often where the 183 day rule comes into play and can be hard to prove without well-kept diary and receipts
- Near and Dear Possessions
- This factor uses the idea that specific, treasured items, whether sentimental or monetary, are more likely to be kept in the residence which is considered “home.”
- Family
- This factor considers where a taxpayer’s spouse and minor children live. Sometimes the location of where the minor children attend school can be an important factor in a domicile test. Occasionally, however, the location of other family members like siblings and parents may be determinative in a change of domicile.
To provide evidence of these factors, there is typically a lot of legwork to be done. This could consist of opening an office in the new state of residency as a business owner, spending more days in your new state of residency than the old state, creating a substantial paper trail to back your claims, and much more. There are also many factors, other than those listed above, that may seem insignificant but could prevent you from winning your audit, such as changing your mailing address for subscriptions or changing your membership status at a club. These changes need to be addressed prior to moving. Don’t try to shortcut this process or you may find yourself on the fast track towards a hefty tax bill.
Moving is tricky and does not only pertain to your stuff! Give us a call at (516)541-6549 for help thinking through your move and making sure you’re not hit with an additional moving expense!