Factors to Consider Regarding State of Residence for State Tax Purposes

The legal test for determining your home state for tax purposes is your place of domicile, which is somewhat different than residence, but the terms are often used interchangeably and residence is used below because most people think in terms of residency, rather than the technically correct domicile. Domicile means the place a person intends to be his or her permanent home and the place to which he or she intends to return after a period of absence.

Determining intent is a subjective matter. The items listed below and perhaps others are used to infer intent. Most of these are not absolute requirements, except perhaps the first six items, but the others may be very important or helpful, depending on your particular circumstances. Not all apply to most people and you should determine those that may be appropriate or helpful to you. The domicile test comes down to weighing all of the factors and then determining which state appears to be the place you treat as your permanent home, so the more factors in your favor, the better your chances of withstanding a challenge by your previous home state.

Many people change residence for non-tax reasons but avoiding state income and estate or inheritance taxes is often a major consideration. States such as Florida, Texas, Tennessee, and Nevada do not impose an income tax or an estate tax, and 34 other states do not impose an estate tax. In the discussion below, the state you will seek to establish as your new tax home is referred to as your “new state” and the state you will seek to stop treating as your tax home is referred to as your “previous state.”

Here are some of the things you can do to establish your domicile is not in your previous state:

The legal test for determining your home state for tax purposes is your place of domicile, which is somewhat different than residence, but the terms are often used interchangeably and residence is used below because most people think in terms of residency, rather than the technically correct domicile. Domicile means the place a person intends to be his or her permanent home and the place to which he or she intends to return after a period of absence.

Determining intent is a subjective matter. The items listed below and perhaps others are used to infer intent. Most of these are not absolute requirements, except perhaps the first six items, but the others may be very important or helpful, depending on your particular circumstances. Not all apply to most people and you should determine those that may be appropriate or helpful to you. The domicile test comes down to weighing all of the factors and then determining which state appears to be the place you treat as your permanent home, so the more factors in your favor, the better your chances of withstanding a challenge by your previous home state.

Many people change residence for non-tax reasons but avoiding state income and estate or inheritance taxes is often a major consideration. States such as Florida, Texas, Tennessee, and Nevada do not impose an income tax or an estate tax, and 34 other states do not impose an estate tax. In the discussion below, the state you will seek to establish as your new tax home is referred to as your “new state” and the state you will seek to stop treating as your tax home is referred to as your “previous state.”

Here are some of the things you can do to establish your domicile is not in your previous state:

1. Have a permanent home in the new state of residence, whether by purchase or long-term lease (a year or more).
2. Spend over half of the year in the new state and keep good records of the days you are in that state, the days you are in your previous state, and the days you are in another state. An electronic or paper calendar, appointment book, or diary, along with airline tickets and credit card receipts or statements, can help establish your location and allow you to show you were in your new state of residence for more than half of the year.
   1. If you travel frequently and might not be in your new state more than half of the year, be sure to be in the new state more days than you are in your previous state. Being present in the new state more than half of the year will be better, especially for the first year that you claim to be a resident of that state.
3. Obtain a driver’s license issued by your new state of residence and surrender the driver’s license issued by your previous state.
4. Register to vote in your new state of residence.
5. Register your vehicles and obtain license plates in your new state of residence. Keep a mileage log showing when and in which state(s) you drove the vehicle.
   1. Please be sure to notify your auto insurance company of the state in which each vehicle is registered and where it is usually kept.
6. Claim the homestead exemption for your new home, if available in the new state. If you maintain a house or condo in your previous state, do not claim the homestead exemption for real estate tax purposes.
7. If your new state of residence is Florida, file a Declaration of Domicile with the county where you reside. Each Florida county has a form Declaration of Domicile that you may complete and file. This seems self-serving, but it was mentioned by the Court as a factor favorable to the taxpayer in an Illinois Appellate Court decision.
8. Change the mailing address on all bank accounts to your address in your new state of residence. Be sure the new address is printed on all of your checks and do not use any checks with your previous address after the date you first claim to be a resident of the new state.
   1. Many large banks have branches in many states, which will minimize the inconvenience. Online banking also makes it easy to use a bank located anywhere. Using a bank that has a branch near your new residence may be helpful.
9. Obtain a safe deposit box in your new state of residence.
10. File all federal and state income tax returns using your address in your new state of residence.
11. Use your address in your new state of residence as your mailing address on credit card statements, brokerage accounts, catalogs, charitable contributions, and for all other purposes, including utilities for your house or condo in your previous state, if you have one. You can handle most transactions online or set up automatic payments.
    1. Have your dividend checks mailed to your new address or deposited directly into your bank account.
    2. If you order items online or from a catalog, have them shipped to your new address whenever possible.
12. Keep at least some of your personal items that are important to you, such as family photographs and memorabilia, in your new state of residence and take pictures of them. This may help show you truly consider your new residence to be your home.
13. Maintain a record of the social, professional, and civic organizations with which you are involved in your new state of residence and keep a record of your actual attendance and activities to show you are part of the community where you now reside. If all of your social, professional, and civic organizations and activities are in your previous state, it will appear that you consider the residence in your previous state as your permanent home.
14. If you currently or desire to belong to a gym, join a gym in your new state. Many gyms will keep an electronic record of the days you swipe your membership card.
15. If you have a professional license (CPA, attorney, broker, physician, nurse, etc.),obtain a license from your new state of residence unless you are retired and not working in the profession.
16. If you engage in hunting or fishing in the previous state, be sure to purchase an out-of- state hunting or fishing license (this was mentioned as a positive factor in a recent case).
17. Use physicians, hospitals, and pharmacies in your new state of residence when practicable, have all medical bills sent to your home in your new state of residence, and have your current health care providers send your medical and prescription records to your physicians and pharmacies in your new state of residence.
18. Utilize accountants and attorneys in your new state of residence for at least some work, even if for brief consultations about taxes or legal documents, and have them bill you at your new address.
19. If you have a concealed carry license, surrender it to your previous state and obtain a concealed carry license or permit from your new state of residence. If your previous state is Illinois and your new state of residence is Texas, Nevada, Arkansas, Idaho, Mississippi, or Virginia (but not Florida or any other state), you may obtain an Illinois non-resident concealed carry license, although Illinois may change the permissible states from time to time.
    1. Missouri will recognize your concealed carry license or permit issued by your new state and it therefore does not issue non-resident permits. Illinois does not recognize concealed carry permits or licenses issued by any state other than Illinois. However, you may carry a concealed weapon in a vehicle in Illinois if you have a concealed carry license or permit issued by your state of residency, but you may not take a concealed weapon outside of the vehicle for any reason (such as when you stop at a gas station, restaurant, or hotel) if you do not have an Illinois resident or non-resident concealed carry license unless you unload the firearm and put it in a case before leaving the vehicle with it.
20. Consider having your fire arms shipped to a federal firearms licensee in your new state of residence for you to pick up. Although federal law allows a person to transport firearms that are unloaded, in a case, separated from any ammunition, and not accessible to the passenger compartment, or in a locked case if the vehicle does not have a trunk (e.g. an SUV), but only while passing through and not if visiting even for a short time, some states, such as New Jersey, New York, and others may arrest you anyway if you have any weapon or even one round of ammunition and make you plead the federal law as an affirmative defense. This should not be an issue driving from Missouri or Illinois to somewhere south of Missouri or Illinois (but check state laws first), but shipping (at least some) firearms to an FFL in your new state of residence will also help establish your intent to make that state your permanent home.
21. Important documents (will, trusts, deeds, etc.) should be maintained in your new state. Any that are prepared after you change residence and which are required to be notarized should be notarized in your new state of residence when practical, even if prepared elsewhere.
22. If you create a trust or will after you change residency, provide for administration of your estate and trust after your death by an executor or trustee in your new state of residence, where practical, and state in the documents that the laws of that state will apply. Using an executor or trustee in your new state may not be practical if family members or associates who you want to handle the administration are located in your previous state, but the governing law can be your new state. It is not necessary to change documents that were executed in your previous state when you were a resident of that state and they will remain effective, even if you amend them after moving.
23. Create new powers of attorney for property and health care using the new state’s statutory forms (or the forms typically used in that state, if not provided by statute), even though your powers of attorney executed in your previous state will remain effective until you execute new documents.
24. Some people claim to be a resident of another state, such as Florida, while his or her spouse remains a resident of the previous state, for personal reasons. A couple is usually in the same location, except perhaps for a short time until both have changed residency, although one spouse may spend more time in the previous state than the other. It may be pushing the envelope a bit for spouses to have permanent different states of residence, although it is theoretically possible. Convincing your spouse to change his or her residence to the same address as you will be helpful, or at least not harmful, if the previous state challenges your residency for tax purposes.
25. Below are a couple of steps for you and your family to take that may affect an income tax or estate tax audit by your previous state after your death. For Illinois, for example, the Illinois Attorney General lists each of these as factors to be considered when determining residency.
    1. Buy a burial plot in your new state of residence. Your family can sell it later if you are buried in the previous state or elsewhere, but showing that you were planning on burial in your new state will be a positive factor.
    2. Instruct your family to have your obituary published in the area where you resided in your new state.

If you have any questions about this please contact Gary True at Summers Compton Wells LLC.