As an increasing number of residents are looking to leave high-taxOpens a New Window. states, such as California and New York, some of these state and local governmentsOpens a New Window. are not making the process easy.
The Tax Cuts and Jobs Act introduced a number of reforms, including a $10,000 cap on state and local tax deductions, which have caused Americans to look into establishing legal primary residences in states where they can limit their liabilities.
But some states give taxpayers a hard time when they are trying to change their domicile – thereby establishing their permanent residency elsewhere.
“California … they don’t particularly like when people that were large taxpayers … leave,” Marc Minker, lead managing director at accounting provider and consulting firm CBIZ MHM, told FOX Business. “The state becomes very aggressive with respect to making you prove that you essentially changed your domicile.”
Changing a domicile requires an individual to physically move with the intent to stay either permanently or indefinitely. The state of domicile determines your income, estate and other taxes.
Even when you change your domicile, that is not always enough, Minker added. If you own a property in the old state, you must be able to prove that you resided in the new domicile for more than 183 days out of the year.
In addition to California, Minker said New York is “equally aggressive,” as are New Jersey, Connecticut and Ohio, among others.
Lance Christensen, a partner at accounting firm Margolin Winer & Evens, agreed that New York State and New York City are aggressive when it comes to allowing taxpayers to leave. He said individuals must be ready to “withstand New York State and New York City challenges.”
To prove where they were throughout the year, Christensen recommends people keep a detailed diary. He also told FOX Business taxpayers should keep items like receipts, plane tickets – even EZ pass receipts.
“The burden of proof is on the taxpayer to prove where he is, or she is, and it can be very close,” Christensen said. “We’ve seen this come down to where your pet is.”
He added that taxpayers should make sure they have thoroughly planned and are prepared for the move, adding for some clients with a lot of taxable income during a certain year it may be cheaper to take a trip around the world than it would be to return to New York and be hit with those taxes.
Christensen has seen an increasing number of people in New York looking to domicile in Florida as a consequence of the new tax law – which he says is especially common among people who already have a second home there.
The report sought out “to determine what … overlapping financial entities mean for taxpayers’ bottom line.” Truth in Accounting said its purpose was to “calculate the various bills (and surpluses, when available) at the city government level and divide them out to determine a per-Taxpayer Burden.”
The two cities with the highest burden: Chicago and New York City; Chicago’s combined taxpayer burden: $119,110; New York City’s combined taxpayer burden: $85,600.
Chicago has been a hotbed for such burdens.
The Chicago City Council approved $2.4 billion in tax subsidies for two major developments in early April. Protesters gathered at City Hall chanting against the deals. Critics said the projects are in prosperous parts of Chicago and developers should pay for infrastructure improvements, not taxpayers.
- Chicago’s combined Taxpayer Burden: $119,110
- New York City’s combined Taxpayer Burden: $85,600
- Los Angeles’ combined Taxpayer Burden: $56,390
- Philadelphia’s combined Taxpayer Burden: $50,120
- San Jose’s combined Taxpayer Burden: $43,120
- San Diego’s combined Taxpayer Burden: $35,410
- Dallas’ combined Taxpayer Burden: $33,490
- Houston’s combined Taxpayer Burden: $22,940
- San Antonio’s combined Taxpayer Burden: $16,660
- Phoenix’s combined Taxpayer Burden: $13,290