States facing tax revenue losses due to population migration from high-tax states to lower-tax states are aggressively seeking to identify individuals who have moved out but continue to impose income and estate taxes on them. The process involves residency audits, where individuals are questioned about their lifestyle, property ownership, and ties to the state. High-tax states closely monitor individuals who transition from full-time to part-time residents or stop filing tax returns altogether.
Individuals planning to move to another state should consider the residency rules of both their old and new states to avoid being taxed by both. Some states use a bright-line rule that deems anyone present in the state for more than 183 days per year as a full-time resident, while others base taxation on domicile, which focuses on an individual’s permanent residence intentions. To establish a change in domicile, individuals should sever ties with the old state such as property ownership, business interests, and social memberships.
Maintaining detailed records of travel, property ownership, and daily activities is crucial to proving residency status during an audit. Close monitoring of technology trails and phone records by aggressive states can also impact tax liabilities. It is advised to update all personal information such as driver’s licenses, voter registration, and professional licenses to reflect the new state of residence. Failure to do so may result in a state challenging the permanency of the move and imposing taxes.
Issues such as leaving valuable property, maintaining multiple residences, or providing conflicting information to different entities can complicate residency audits and lead to potential tax liabilities in multiple states. State tax authorities have the ability to retroactively assess taxes on an individual’s estate, highlighting the importance of proper record-keeping and consistent actions throughout the relocation process. To avoid disputes over residency status and potential tax implications, it is recommended to seek professional guidance and plan the move carefully to establish a permanent change in domicile.
Individuals should be aware of the differences in residency rules and tax implications between states, as well as the potential consequences of maintaining ties to a previous state. By taking proactive steps to demonstrate a clear intent to permanently relocate and severing all significant contacts with the old state, individuals can minimize the risk of dual taxation and navigate residency audits successfully. Proper documentation, record-keeping, and adherence to state residency guidelines are essential to ensure a smooth transition and avoid legal and financial implications related to state taxes.
