As residents continue to weigh their options, such as establishing a Florida residency, revenue-starved states are intensifying their scrutiny of individuals and families attempting to change their status for tax purposes. Our colleague at WithumSmith+Brown, Barry Horowitz, Partner and Practice Leader for State & Local Tax Services, describes key considerations when planning to establish residency in Florida.
For New Jersey income tax purposes, your residency status depends on where you are domiciled and where you maintain a permanent place of abode during the tax year. In general, when you change your domicile to (or from) the State of New Jersey during the year, you are a resident of New Jersey for part of the year (part-year resident) and a nonresident of New Jersey for part of the year (part-year nonresident).
Your move is generally considered a change of residency status if at the time you moved, you intended to permanently leave one home and establish a new, fixed, and permanent home somewhere else. Domicile is any place you regard as your permanent home—the place to which you intend to return after a period of absence (e.g., vacation abroad, business assignment, educational leave, etc.). You can have only one domicile at any point in time, although you may have more than one place to live. Once established, your domicile continues until you move to a new location with the intent to establish a fixed and permanent home there. Moving to a new location, even for a long time, does not change your domicile if you intend to remain only for a limited time.
Domicile is based on many factors, including your intent, where you register to vote, maintain a driver’s license and vehicle registration, have family ties, etc. You can have only one domicile at a time. The burden of proof is upon the person asserting a change of domicile to show that the necessary intention existed to abandon his other domicile in one location and to establish a fixed and permanent home in another. The two most important factors to look at is your home and business connections. The State will look at the size of your home, date of acquisition and value and will certainly look at your base of business and the location where you work.
Using Florida as the example, the following is a checklist of items which should be done to prove a change of domicile:
- File a declaration of domicile and a Florida homestead exemption.
- Obtain a Florida driver’s license and relinquish a New Jersey license.
- Re-register automobiles and acquire Florida license plates and relinquish New Jersey license plates.
- Register to vote in Florida and remove one from the New Jersey voting rolls.
- File a nonresident, rather than a resident, New Jersey income tax return if there is New Jersey-source income. Transfer safe deposit box contents to Florida and close out a New Jersey safe deposit box.
- Open Florida bank and brokerage accounts. Have all hotels (on registration), insurance and credit card companies be notified of your new address. Statements, bills, letters should all be mailed to the new address.
- Execute a new Florida Will, Florida durable Power of Attorney, and Florida health care proxy.
- Refer to Florida residence in all trusts and other legal documents.
- Aﬀiliate with Florida organizations and consider disaﬀiliation with New Jersey organizations.
- Have family gatherings and social activities centered in Florida rather than New Jersey.
- Relinquish oneself from any country club/dinner clubs in your old state, as well as cancel any subscriptions (e.g. newspaper subscription) in the old state.
- Transfer all medical and dental documents from the old state to Florida.
- Aﬀiliate with a church, synagogue or place of worship in Florida.
- Transfer works of art, expensive furniture, heirlooms and other valuable personal items to Florida.
- List the Florida residence as the primary residence on all homeowner’s insurance.
- Move and license pets in Florida.
- Stay in Florida as long as possible each year and if working, return to Florida after business trips, etc.
The above covers many of the items which clients should do to prove a change of domicile. However, each individual’s facts and circumstances diﬀer and this needs to be tailored to their lifestyle.
183 Days: The taxpayer has the burden of proof to show that he or she spent no more than 183 days in New Jersey. As such, if you plan to change your residency but intend to keep a New Jersey permanent place of abode, you must keep detailed records of your days spent in New Jersey. These records should include a personal calendar, credit card statements, travel records, etc. Remember, any part of a day spent in New Jersey counts toward this total.
The rules and discussions above outline the general principles for residency in New Jersey. It is largely driven by facts and circumstances. Recordkeeping is paramount in proving a change of residency. It should be noted that even if you can prove you are a non-resident, any income sourced (wages, S Corporation income, capital gains, etc.) to New Jersey will need be reported on a Non-Resident Tax return and will be taxed at the New Jersey gross income tax rates.