People seem to be fleeing the Empire State en mass for a whole host of reasons, including costly living expenses and high tax rates. More residents left New York over the past year than did residents of any other state, migrating to states that offer more attractive deals and incentives for companies and their employees. People are moving to states that have substantially lower taxes, more available jobs and larger homes for cheaper prices, such as Arizona, Texas and Florida. But is it really that easy to cut ties with New York and change your residency status?
New York has two tests for determining residency:
- Domicile Test
- Statutory Residency Test
In this article, we will focus exclusively on the first, the Domicile Test. Your domicile is the place you consider to be your permanent home. There are five primary domicile factors used to determine where the taxpayer’s domicile is located:
- Home – use of New York residence as compared to an out-of-state residence
- Active business involvement – where an individual’s economic and financial activities are located
- Time – how and where the individual spends time during the year
- Near and dear – location of individual’s possessions
- Family – location of spouse and minor children
Changing your residency from one state to another can be a long and difficult process, and each of these factors should be carefully considered. The burden of proof is placed upon the taxpayer to establish clear and convincing evidence that you have established a domicile in the new state. The key is to plan ahead, intend to leave the state and land in another, and properly sever ties with NY.
The following is a list of steps individuals should consider taking when relocating to another state. Although it is important that a taxpayer perform these steps, no one step will automatically guarantee success in changing domicile for tax purposes, but rather assist in backing up their new residency position.
- Purchase a home or lease an apartment in the new state
- Move as much personal property as possible to your new home
- Open a safe deposit box in the new state
- Transfer valuable possessions and important papers
- File a change of address with the post office and the IRS
- Change your address directly with all institutions to your new address
- Register to vote in the new state and vote in person
- Obtain driver’s license and vehicle registration in new state and surrender old ones
- Transfer major bank and investment accounts to new state
- Execute a new will under the laws of the new state
- Establish affiliations with religious, social, political, civic and professional organizations in the new state
- Establish new subscriptions and memberships and cancel old ones
- Establish relationships with physicians, dentists and professionals in new state
- File a declaration of domicile in the new state, if offered
- Claim homestead exemption when available
- Do not claim STAR in New York State
- File resident income tax returns in the new state, if applicable
- Be present in the new state more than you are in any other state
In many instances, taxpayers may not completely sever ties with New York and continue to maintain various connections to the state. When you have a home somewhere else, but you are in New York enough for whatever reason, you could be viewed by the New York State Tax Department as a Statutory Resident and taxed accordingly. Watch for our next newsletter as we explore the second test for residency, the Statutory Resident Test.
For more information, contact Melissa Howell, CPA, Principal, Small Business Department at mhowell@tsacpa.com or 716.633.1373.
