Some states give taxpayers a hard time when they are trying to change their domicile – thereby establishing their permanent residency elsewhere. The state of domicile determines your income, estate and other taxes.
As previously reported by FOX Business, New York and California are particularly “aggressive” in requiring taxpayers to prove that they actually moved with the intent to stay either permanently or indefinitely.
“California … they don’t particularly like when people that were large taxpayers … leave,” Marc Minker, lead managing director at accounting provider and consulting firm CBIZ MHM, previously told FOX Business. “The state becomes very aggressive with respect to making you prove that you essentially changed your domicile.”
Geoffrey Weinstein, special counsel in the Tax, Trusts & Estates Department of Cole Schotz, told FOX Business that it’s “very hard to fake” a change of domicile because states put the burden of proof entirely on the taxpayer – and the criteria can be very particular.
“It’s a very fact-sensitive analysis,” Weinstein said.
The process is easier for those who simply want to leave their home and move to a new one. However, in many cases, individuals want to maintain a residence in New York or California– which requires them to prove they have established ties in the new jurisdiction and abandoned those in their old domicile. The latter is what becomes an issue with tax departments.
Everything from an analyses of the homes, to active business involvement, to where time is spent, where personal items are kept and where families reside will be scrutinized.
Experts have told FOX Business that a wealthy individual leaving New York City or New York State should be ready to withstand challenges from both the city and the state. Weinstein told FOX Business that anyone maintaining a residence in the state with an adjusted grow income in excess of $500,000 has between a 90 percent and 99 percent chance of being audited.
Both California and New York have said the number of audits will rise as an increasing amount of taxpayers look to move out.
Between 2013 and 2017, New York State collected about $1 billion from residency audits, according to data from personal residency audit defense company Monaeo. During that timeframe, an average of about 3,000 non-residents were audited annually. Taxpayers are forced to cough up an average of $144,000 to New York as a result of residency audits.
And most people lose their cases – according to Monaeo 52 percent of people fail to convince auditors that they have moved.
In order to help your case, experts recommend keeping detailed records and a diary – and to keep items like receipts, plane tickets and EZ pass receipts.
Earlier this year, New York Gov. Andrew Cuomo credited changes to the cap on state and local tax deductions for the state’s $2.3 billion budget deficit because residents were leaving. He said the fiscal situation was “as serious as a heart attack.”