Jul. 23, 2024

CHANGING RESIDENCY FROM NEW YORK TO FLORIDA (OR ANY OTHER STATE): PART THREE - DOMICILE EXCEPTION

CHANGING RESIDENCY FROM NEW YORK TO FLORIDA (OR ANY OTHER STATE): PART THREE - DOMICILE EXCEPTION

Note: This is the third in a series of articles that will cover strategies for changing residency, surviving an audit, and challenging a negative result.

New York State is arguably the most onerous income tax jurisdiction in the country. This has led many New York residents to change their residency to reduce their tax burden on income not effectively connected to New York. This includes business income from around the United States and the world, as well as investment income in retirement. However, as New York’s income tax base erodes with residents fleeing to Florida, New York intends to keep high-income earners paying state taxes on as much income as possible. There are two tests under the New York State Tax Law to determine an individual’s residency: domicile and statutory residency. The previous article addressed the domicile test. (See the June 5 post, which provides an introduction to this topic.) The exception to the domicile test will be addressed in this article.  

An individual’s domicile is the place where that individual resides until that individual has proven that the place of residence has permanently changed to another state and there is no intention to return to New York. However, an individual is deemed to not be domiciled and, thus, not a resident of New York if one of two tests are met.

First Test

The first test applies to individuals that can demonstrate that they have changed their residence to someplace outside New York by changing the permanent place of abode. If an individual otherwise domiciled in New York meets each of the following three conditions, that individual is deemed not domiciled in New York.

  1. The individual did not maintain a permanent place of abode in the state of New York during the taxable year;
  2. The individual maintained a permanent place of abode outside New York during the taxable year; and
  3. The individual did not spend more than 30 days (full days or parts of days) in the state of New York during the taxable year.

Second Test

The second test applies to individuals that can demonstrate that they have been abroad for an extended period. If an individual otherwise domiciled in New York meets each of the following three conditions, that individual is deemed not domiciled in New York.

  1. The individual was in a foreign country for at least 450 days during any period of 548 consecutive days;
  2. The individual, their spouse (unless legally separated), and any minor children spent no more than 90 days in the state of New York during that 548-day period; and
  3. The individual does not exceed the allowable number of days allowed by the nonresident portion formula as applied to any partial calendar year.

For purposes of this test, this nonresident portion formula first determined the number of days in the calendar year are in that 548-day period. Then, that number is divided by 548. This is the proportion of the 548-day period that falls within that calendar year. This fraction is multiplied by 90 days to give the total number of allowable days that the individual can have been in the state of New York for the partial calendar years that fall into each year.  

The 548-day period can cover up to 3 different calendar years. The purpose of this nonresident portion formula is to ensure that a person has been a non-resident for the entire 548-day period and has not begun living in New York again.

Permanent Place of Abode

Generally, an individual’s permanent place of abode is the building or other structure in which they permanently maintain residence. The permanent place of abode must be suitable for use year-round. There are special rules for students and other circumstances. The issue of permanent place of abode will be addressed in more detail in a future article in this series.

Summary

To change residency from New York to another state, an individual would need demonstrate that they are not domiciled in New York. If an individual can establish that they have no available residence in the state of New York and have established a residence outside of the state of New York, then that individual will be deemed to no longer be domiciled in New York. Also, if an individual can establish a long-lasting presence overseas, that individual will also be deemed to no longer be domiciled in the state of New York. If either of these tests are met, that individual will no longer be a New York resident for tax purposes.

Scott Shimick is a Partner at Whiteman Osterman & Hanna, LLP and the leader of the firm’s Federal and State Taxation Practice Group. You can contact him at (518) 487-7678 or by email at sshimick@woh.com.

Tax /