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Domicile: A State Tax Consideration for Snowbirds

In my last article, “Estate Planning for Snowbirds,” I briefly mentioned that for people who divide their time between New York and Florida, an important question is domicile or in which state you are considered a resident. In this article, I will address the tax advantages of being a Florida resident, rather than a New York resident, and the process of becoming a Florida resident, even if you intend to spend significant time in New York each year.

What is Domicile

The first question you may be asking yourself is, what does the word “domicile” mean? The term “domicile”, while not defined by statute, is defined in New York as, “ [domicile] in general, is the place which an individual intends to be such individual’s permanent home — the place to which such individual intends to return whenever such individual may be absent.”[1]Further, “[a] person can have only one domicile. If such person has two or more residences, such person’s domicile is the one which such person regards and uses as such person’s permanent home.”[2]So, although you may have a house in New York and a condo in Florida, i.e. you have two residences, you can only be domiciled in either New York or Florida, not both.

The second question you may have is, why does it matter where I am domiciled? New York Tax Law §601 imposes New York State personal income tax on “resident individuals.” Pursuant to New York Tax Law §605(b)(1), a resident individual is defined as person domiciled within the state or a person “who is not domiciled in this state but maintains a permanent place of abode in this state and spends in the aggregate more than one hundred eighty-three days of the taxable year in [New York]….”.[3]Further, New York residents are taxed on all of their income both inside and outside of New York. Additionally, New York currently imposes an estate tax of 16%upon the estate of every resident decedentwith an estate over $5,250,000. In contrast, Florida does not have a state income tax or a state estate tax. Based on the potentially significant tax savings, if you are already dividing your time between New York and Florida or are considering dividing your time in the future, where you are domiciled is an important consideration.

How to Change Your Domicile

So, you’ve decided that New York winters and taxes are not for you. Now, how do you go about actually changing your domicile to Florida? First, it is important to note that New York State is very aggressive in auditing people who change their domicile from New York to Florida (or other snowbird friendly states). New York residency audits are very fact intensive. When attempting to establish that a person is domiciled in New York, the tax auditor will look to five factors:

  1. The Home: New York will closely examine the size, value, and nature of use of the person’s dual residences. To illustrate, if you maintain a large home in New York and a studio apartment in Florida, that would point towards New York being your domicile. If you own your home in New York and rent in Florida, that would point towards New York being your domicile.

 

  1. Active Business Involvement: Active participation in New York corporations and Limited Liability Companies is the second factor indicating New York presence. In a seminal case in this area, the Court held that the taxpayer had not changed his domicile from New York and looked to the fact that the taxpayer retained business interests in New York, which he tended to when he returned to New York several times throughout the year.[i]

 

  1. Time Spent in New York: New York auditors will closely analyze the time spent in New York as compared to other places. The key focus is on the overall living pattern of the taxpayer. For example, if you only spend January and February in Florida and return to New York whenever there is no sign of snow, New York will argue you are really domiciled in New York. Some people confuse this with the 183-day rule, which will be discussed below, but actually there is no hard number, but rather you need to be able to show that you spend significantly more days in Florida than you do in New York.

 

  1. Items “Near & Dear”: The location of items to which one considers “near and dear” such as art work, family mementos, your stamp collection or other collectables, important documents, jewelry and other items that you would tend to keep in your primary residence.

 

  1. Family Connections: New York will review family connections in limited situations where the other four primary factors are not conclusive. If your entire family lives in New York, such as your spouse or minor children and you are not legally separated or divorced, it may be more difficult to prove you are domiciled in Florida.

Besides being aware of the five factors a New York state tax auditor will use to establish that you are domiciled in New York, the other steps you should take to exemplify that you have changed your domicile to Florida are as follows:

  1. File a Florida Declaration of Domicile in the office of the clerk of the circuit court for the Florida county in which you live.
  2. File an application for a homestead exemption for your Florida residence. The homestead exemption is beyond the scope of this article, but it provides property tax benefits similar to New York’s Star Program and certain creditor protections on your residence. The key to the homestead exemption for domicile purposes is that it must be on your primary residence, not a vacation home.
  3. Exchange your New York driver license for a Florida driver license.
  4. Register to vote in Florida.
  5. Register your car, boat, RV and other vehicles in Florida.
  6. Change your banking to a Florida bank (or a bank with branches in New York and Florida).
  7. Join a Florida church, synagogue, or other place of worship.
  8. Join Florida clubs, make Florida friends and establish your life in Florida.
  9. Update your estate and succession planning documents to include Florida documents, such as a Declaration of Health Care Surrogate, Florida Declaration and Florida Durable Power of Attorney. Also consider the efficacy of your Will and any trusts based on Florida law. For more information see my article entitled “Estate Planning for Snowbirds”.

This list is by no means exhaustive, but it is also by no means a checklist wherein if you complete every item, your domicile will have been definitively changed to Florida. As stated at the outset of this section, New York residency audits are fact intensive. The best way to establish that you are domiciled in Florida is to actually move your life to Florida, i.e. spend most of your time in Florida, maintain a residence nicer or equal to your New York residence, change all of your licensing and registration to Florida, move your important things to Florida, and begin maintaining your life down there and come to New York for visits, rather than the other way around. Also, be prepared for a residency audit by maintaining your evidence that you are domiciled in Florida.

Statutory Residency: The Final Escape from New York

Okay, so you’ve changed your domicile to Florida, you’re now free from all New York State taxes, right? Not necessarily. New York State will still tax individuals deemed to be statutory residents. Pursuant to New York Tax Law § 605(b)(1)(B), a resident individual can also be a person “who is not domiciled in [New York State] but maintains a permanent place of abode in [New York State] and spends in the aggregate more than one hundred eighty-three days of the taxable year in [New York State]….”

What is a “permanent place of abode?” A permanent place of abode is a dwelling place permanently maintained by the taxpayer, whether or not owned by him or her, and will generally include a dwelling place owned or leased by their spouse.[ii]So basically, if you maintain a house or apartment in New York, you would have a permanent place of abode in New York.

By definition, most snowbirds will maintain a permanent place of abode in New York, which brings them into the 183-day rule, which means, if New York State can demonstrate that you have a permanent place of abode in New York, then if you spend in the aggregate more than 183 days of the taxable year in New York, you will be considered a New York resident and taxed as such.[iii]It is important to note that partial time spent while in New York, such as a travel day, taints the entire day.[iv]

The burden of proof  lies with the taxpayer, upon whom it is incumbent to establish that they neither maintained a permanent place of abode in New York nor spent more than 183 days in New York during the tax year in question. You can demonstrate that you were not present for more than 183 days by submitting testimonial evidence, documentary evidence or a combination of the two. Such evidence may include receipts from items purchased in Florida on the dates in question to show you were indeed in Florida. The best practice, that many people conscious of the 183-day rule follow, is to keep a contemporaneous calendar that simply states where you are each day, New York, Florida or elsewhere.

New York is aggressive in conducting residency audits, which can be fact intensive. If you are considering changing your domicile to Florida, it may be beneficial to speak to a trusts and estates attorney to discuss your plans. The Trusts and Estates department of Twomey, Latham, Shea, Kelley, Dubin & Quartararo has attorneys who are admitted in multiple states, including Florida, available at your convenience to answer your questions, review your current estate plan to ensure it continues to meet your needs, discuss the implementation of a multistate estate and succession plan or to assist you in a residency audit.

[i]SeeMinsky v. Tully, 78 A.D.2d 955, 955, 433 N.Y.S.2d 276, 277-278 (N.Y. App. Div. 3d Dep’t 1980).

[ii]See20 NYCRR 105.20(e)(11).

[iii]SeeMatter of El-Tersli v. Commissioner, 14 A.D.3d 808, 810, 787 N.Y.S.2d 526, 528 (N.Y. App. Div. 3d Dep’t 2005)..

[iv]SeeZanetti v. New York State Tax Appeals, 128 A.D.3d 1131 (N.Y. App. Div. 3d Dep’t 2015).