Since President Trump announced that he had changed his residence to Florida, there has been increased interest in the idea of switching from a high-tax state like New York to a low-tax state like Florida, which has no personal income tax.
Although it appears to be an attractive option for avoiding high state income taxes, there are some hurdles that taxpayers will face when considering such a move.
How Does New York Tax Residents and Nonresidents?
New York taxes residents on all of their income, wherever it was generated. On the other hand, nonresidents are subject to tax only on their New York source income, which is basically their income derived from New York sources.
So New Yorkers who successfully change their residence to another state can reduce their New York income tax exposure significantly, but not completely.
Nonresident taxpayers in this situation may also find themselves subject to audit on the question of whether they properly allocated their income to New York.
How Does New York Decide Who Is a Resident?
New York has two tests for classifying individuals as residents.
The first test is domicile. This is a very subjective inquiry, looking at the taxpayer’s intent. A taxpayer claiming a domicile change has the burden to prove by clear and convincing evidence that the old domicile was abandoned and the taxpayer plans to stay in the new location.
The second test is called statutory residency. Under this test, a taxpayer who is domiciled in a different state can still be taxed as a New York resident if he or she:
- maintains a permanent place of abode in New York; and
- spends more than 183 days in New York during the year.
How Easy Is It for New Yorkers to Change Their Residence?
New York is aggressive in auditing taxpayers who have filed as nonresidents, and auditors will take a close look at all of the areas noted above under the applicable residency tests, including the taxpayer’s intent, the nature of any home maintained in New York, and documentation of days spent within New York or outside the state.
New York has released its 128-page nonresident audit guidelines, which provide a detailed look at all of the factors considered in a residency audit.
For domicile, auditors will examine the taxpayer’s lifestyle, including five primary factors:
- active business involvement;
- near and dear items; and
- family connections.
Various other factors may include things like:
- voter registration;
- the taxpayer’s address for bank statements and bills; and
- the location of the taxpayer’s vehicle registration and driver’s license.
With regard to statutory residency, partial days in New York will generally count as full days.
For a taxpayer trying to prove the number of days spent outside the state, documentation will be especially important, including things like:
- cell phone records;
- credit card statements; and
- travel records.
In the New York tax cases, there are many examples of individuals who asserted a change of residence but who ended up being taxed as New York residents.
For example, in one case from 2019, a doctor who temporarily moved to another state for a new job failed to prove that he changed his domicile, even though he purchased and registered a car, obtained a driver’s license, and joined a church there. None of those formal declarations indicated his clear intention to permanently move and abandon his New York domicile.
And in another 2019 case concerning statutory residency, an individual domiciled in Florida was taxed as a New York resident because he failed to provide sufficient documentation that he did not spend more than 183 days in New York. He challenged some evidence of credit card purchases made in New York, arguing that the purchases were made by other authorized card users, but his testimony was not specific enough with regard to particular dates and purchases that he claimed were inaccurately attributed to him.
By Brian Plunkett, J.D.