An often overlooked step during the moving process is failing to take the proper steps to establish legal residency. The determination of a taxpayer’s legal residence is the basis for calculating an individual’s state tax liability. Income, property, and estate taxes vary considerably from state to state. Although an individual may not establish legal residency in two different states, it is possible to be taxed in two states at the same time, as if you were a legal resident of both. Having dual residency can mean paying taxes, such as state inheritance or estate taxes to two or more states. Further, failure to properly establish legal residency can also affect a number of other factors such as resident tuition rates at state universities, eligibility to vote or to be a candidate for public office.
The terms “legal residence” and “domicile” are used interchangeably to denote the place where you have your permanent home. There is no single set of facts to establish an individual’s legal residence. Establishing a new legal residence requires a series of actions that, when taken together, show the intent to establish permanent residency in another state.
A key factor to support a taxpayer’s intent of establishing residency is to be physically present in the state for a prescribed number of days for a fixed period of time. Most states require a minimum physical presence of at least 183 days per year. Currently, Pennsylvania, Washington D.C., New Jersey, New York, Massachusetts, Minnesota and Conneticut have this requirement. Some states may require “more than six months” of physical presense such as Arkansas, Colorado, Maryland and Nebraska, while others require a longer physical presense.
The following actions should be taken in order to help prove your intent to make another state your permanent residence:
- Establish and maintain a principal residence with a home purchase contract, rent receipts, or other proof indicating you maintain a principal residence within the state.
- Notify your current Motor Vehicle Agency and Board of Elections of your move to a new state.
- All permanent registrations such as passports, voter registrations, and driver’s license should be moved to your desired state.
- All income tax returns should be filed from your resident state, along with Form 8822 “change of address”. You must comply with the applicable tax laws of the state which is your new legal residence.
- Estate planning documents should reflect the change of your residency. The validity of these documents needs to be reviewed to determine if the documents are compliant with the state regulations.
- File a Declaration of Domicile in the state. This is a sworn statement that you currently reside in a particular county and intend to maintain a permanent residence.
- All banks, brokerage, or other accounts should be transferred to your new state.
- Any country club memberships should be changed to your new address.
- Your most “near and dear” possessions should be relocated to your new address since one would typically keep these items in a location in which they intend to be most present.
Additional residency requirements may be required dependent on the states in which residency is being considered. Generally, unless these steps have been taken, an individual’s legal residence has not changed. This list is not exhaustive and if you believe any of your actions create ambiguity, further steps may need to be taken to prove your intent to be considered a legal resident of a state.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.