So, the question occasionally comes up with our clients - should they
consider moving across the state line to obtain the benefits of a lower income
or property tax? The answer isn't always easy because there can be
important family concerns which will far outweigh any tax saving
considerations. However, even ignoring the family and personal
considerations, the answer can still be complicated.
The states are well aware that many citizens try to claim
residency based on tax considerations and they will often challenge your
residency claims in court. Most states will look at a list of residency
"factors" that have been long established by the courts in making
their determinations, so it is in your best interest to know what those factors
are before you make an unwise decision to uproot your family.
need to be aware that no one factor is determining and that both tax authorities
and the courts can make an independent decision to weigh certain factors more
heavily than others depending upon your circumstances.
Some of the factors that the courts have established over the years have
included the following:
- The length of time spent in each state is probably the single largest
- The location of your telephone listing
- The location of your primary bank and investment accounts
- The location of your primary physician, dentist, accountant, lawyer,
- The location and value of your primary residence as compared to the
value of any other residences
- The location of your residence on important legal documents (wills, tax
- Where you pay property taxes
- Where you maintain and register your personal property such as vehicles,
- Where you register and maintain professional licenses
- Where you do volunteer work, attend church and donate money to charity
and political campaigns
If you have a significant income, it would be wise to NOT underestimate the
state's aggressiveness at pursuing a residency claim. If they think they
have a case against you, it may well be worth their time and expense to fight
your residency claim in court and even hire a private investigator to assist
them in gathering information on the above factors.
In the case of many
taxpayers who spend a lot of time in more than one state, it can come down to a
fine line on where the place of residency is located.
If you do plan to use state residency as a plan to avoid higher taxes, yet
you still spend a significant amount of time in your old state, you should
definitely take measures to address the factors we listed above and keep a
personal diary of where you spend your time.
Without that diary, your case
will be weakened considerably if you fail the test on many other factors.
We urge you to call our office before packing your bags. A few minutes
discussing your options now can save you some agonizing hours fighting an
expensive court battle four years down the road.