Escape from New York
Considering a Change in State Residency
State and city tax burdens in certain parts of the United States have motivated high-income and high net worth taxpayers to consider moving to locations with lower taxes and cost of living.
New York and California are two obvious examples and they're seeing an exodus of residents.
Tax planning tips if you're moving out of New York
While it sounds simple, getting away from New York tax collectors is not nearly as simple as packing up and moving on. In fact, the process can be fraught with risk. This is especially true if you have six-figure+ incomes.
The New York tax collectors are highly motivated to take a look-see and confirm you've met the requirements to escape their grasp with regard to income and estate taxes. Note: New York has a low estate tax exemption as well.
Here are a couple of things to consider when changing state residency. You may be surprised, but the states are aggressive in their attempt to tax you after you've left.
The meaning of domicile
For New York, domicile is one of the two primary tests. Both New York state and NYC will tax you as a resident if EITHER of these criteria is true.
What do you mean by the term domicile? Where is your actual domicile?
I like to say your domicile is where you keep your teddy bear. Where do you board your puppy dogs? The intent is a key factor in determining your domicile. The problem is kind of mushy, isn't it.
That's why domicile arguments can be hotly contested, especially when big money is involved. New York digs into a great deal of your personal information to prove your domicile remains with them. Think phone records, credit card statements, medical visits, and so on. Very simply, defining your domicile may not be easy or clean-cut unless you have made a complete break with the state.
New York Residency
Taxpayers can also be caught by the statutory residency test.
If you spend more than 183 days in New York and maintain
some form of permanent abode in New York,
you have met the statutory residency test.
Congratulations, you have NY residency.
Keep in mind one minute of presence in the state counts as one full day there.
There are some very limited exceptions, but New York auditors had one case where they wanted to include one taxpayer because the 18th hole at his golf club was in New York while the other 17 holes were in Connecticut. He played a lot of golf - I think you get the idea.
New York performs over 3,000 residency audits a year, collecting an average of $250 million in taxes and penalties.
For reference, here's the link to the New York Department of Taxation and Finance
Tax Planning is Important
If you're considering leaving the state, plan carefully. Get your ducks in a row.
If you've moved to a friendlier state (like Texas), then it's time to prepare your defense. Establish the documentation to prove yourself innocent. The taxpayer bears the burden of proof in all of these cases.