According to U.S. Census data, New York had more than 69,000 people move to Florida in 2015, the most recent statistics available. More than 1.5 million native New Yorkers now live in Florida. That’s more than the number of native New Yorkers living in New Jersey.
They aren’t all retired. A surprising 78% of New York transplants are under the age of 60 in Florida, according to the Census Bureau.
When the havoc of hurricane season is over and Florida residents are assessing the damage, it would be doubly unfortunate if they were additionally “taxed” by not proving domicile in the Sunshine State.
In recent years, we’ve seen increasing tax audits of New Yorkers claiming “domicile” in Florida despite keeping a home, business dealings and/or family ties in New York. Although the taxpayer’s “intent” to permanently live in Florida is considered during these tax audits, their actions, connections and holdings in New York or New York City will speak louder when it comes to paying New York income tax.
According to state law, if taxpayers maintain a permanent residence in New York and spend more than 183 days a year in the state, they are New York state residents for tax purposes and must pay New York income tax on all world-wide income, even if some of that income originated outside of New York State. They may be entitled to tax credits for taxes paid to other states for income sourced in other states.
In Florida, there is no income tax. Homeowners can also file for a homestead exemption, which makes the first $50,000 of your primary homestead (usually the one you actually live in) nontaxable for property taxes. Home valuations for property tax purposes are also capped to a 3 percent increase in value per year.
If taxpayers can prove “domicile” or permanent residency in Florida rather than in New York, they would pay income tax only on income derived from New York sources. They could also apply for part-resident or non-resident New York status, which impacts the level of income tax they pay to the state. The burden of proof, however, is on the taxpayer.
New York tax auditors look at five telling guidelines to determine whether or not homeowners have proven domicile in Florida or any other state.
- Size and nature of the home
Is the home in New York larger and of a higher value than the home in another state? Do housekeepers, groundskeepers or property managers staff it? How is it used when the taxpayer is there? If you are selling the property, are there current contracts with brokers? Is the taxpayer planning to downsize the New York home? Keep in mind that tax auditors don’t make a distinction between owning and renting the property to consider it your domicile.
- Business involvement
Former New York business owners who claim to have sold their businesses and retired to Florida will have to prove to auditors that they no longer hold substantial investment in or day-to-day management duties for the company. Are you in constant communication with management, customers or vendors? Auditors may ask for phone or email records, correspondence and investment holdings with the New York-based business to determine the taxpayer’s intent to truly retire and create domicile outside of New York State. Even if you prove domicile in another state, you may still pay income tax on compensation or disbursements from the New York business. New York sourced income such as compensation earned or profits from a “pass-through” entity like an S corporation in New York will remain taxable. Typically, children take over the New York business and the parents need income. Planning on how they receive that income is critically important.
Even if you spend less than 183 days in New York (a statutory non-resident) in a given tax year, it may be hard to claim domicile in Florida if nothing significant has changed in your daily life. Auditors will analyze your time spent in New York relative to time in Florida such as work, recreation, family time and how you conduct your financial affairs. Auditors will focus on the overall living pattern, and determine if that pattern provides strong evidence that Florida or other new location has become the taxpayer’s domicile. If you spent significant time in another state (with income tax) for work purposes, be careful that you don’t get double-taxation on your income from both states. Remember, the burden of proof is on the taxpayer to prove days not spent in New York, and any part of a day spent in New York is counted as a New York day.
- Valuables / Possessions
People who move permanently to another state with no plans to return would bring their prized possessions with them — things that are financially or sentimentally valuable. Auditors will ask for records that show proof of the location of those goods in a given tax year. Here we are talking about family heirlooms, works of art, books, stamps, coins etc. Moving records documenting the transit, or insurance records documenting policy riders can be very helpful.
- Pull of family ties
This factor carries the least weight of the other four, but may still be considered if absolutely necessary. People who regularly spend time in New York to be with family can still prove they are residents of another state. However, family visiting the taxpayer in Florida is generally more helpful.
Domicile planning can support intent.
For New York residents who are establishing, or thinking of establishing, domicile in Florida (irrespective of hurricane season), they need to first start spending more than 183 days a year in Florida. Next, they should apply for a homestead exemption in Florida, showing intent to make Florida their permanent home. In writing, they should note the official date of change of residence as well as the reason for their move, such as retirement or marriage. Remember, the law requires that the taxpayers prove, by clear and convincing evidence, that they abandoned the former New York domicile and clearly established a new domicile in Florida.
Other factors and decisions that support your intent include:
- State where the taxpayer is registered to vote
- The state of issuance of a driver’s license
- Location of schools that children attend
- Memberships in country clubs, fitness clubs or civic organizations
- Credit card statements, where bills are sent and where money is spent
- Location of bank accounts, investments and ATM withdrawals
- Records of airline frequent flier miles and passports
- Church attendance and membership
- Location of doctors, dentists, attorneys, accountants
- Official mailing address where mail is received
- Location of auto, boat and airplane registrations
- Legal documents such as wills declaring Florida as your domicile
Besides demonstrating in these ways that your daily life is happening in Florida, it’s a good idea to keep a diary and calendar of your time spent in New York, including airline and travel receipts to support your calendar. In some rare instances, New York may subpoena your cell phone records to see what cell towers you are “pinging” off of when making or receiving calls. Keep this documentation until New York’s statute of limitations for tax return audits has expired, which is after three tax years.
It is possible and legal to establish domicile in Florida even if you visit family and friends in New York, have investments or even rent a home here. With careful planning, you may still pay some income tax, but it’s better than paying more tax than necessary — or pretending you no longer have ties to New York.
Robert E. White, CPA, PFS, is a partner with Long Island’s Markowitz, Fenelon & Bank LLP. He is personal financial specialist who focuses on tax planning for individuals and closely held business owners. Contact him at firstname.lastname@example.org.