How to Establish Residency: Domicile vs Statutory Residency
- Aug 17, 2023
- David Ifraimov
Moving from one state to another is a significant life event that requires careful planning and attention to tax details. One crucial consideration is severing domicile in the old state and establishing residency in the new state. This residency determination is essential for taxation purposes and gaining access to certain benefits and services.
Most states employ two tests to determine residency: the domicile test and the statutory residency test.
The Difference Between Domicile and Statutory Residency
The domicile test primarily focuses on an individual's intent to make a specific state their permanent home. It considers factors such as the location of the individual's primary home and where they spend most of their time, as well as their professional ties, family connections and social relationships. Your domicile remains the same until you affirmatively abandon it and acquire a new one with the intention of making the new location your permanent home.
The statutory residency test examines an individual's presence within a state and often focuses on the number of days spent in the state over a specific period, typically a calendar year. A statutory resident is a person who is not domiciled in the state but maintains a “permanent place of abode” in the state, and who spends more than 183 days of the taxable year in the state.
Any part of a day counts as a day and the burden of proof is on the taxpayer. Although every individual has only one domicile, they can be considered for tax purposes a resident of more than one state.
New York State defines a “permanent place of abode” as a dwelling place of a permanent nature. A taxpayer does not have to own or lease the dwelling in their own name for it to be considered a permanent place of abode. For example, if you have access to an apartment in New York City, even if you are domiciled elsewhere, you could still be considered a New York State and City resident. (NY City imposes a tax on residents in addition to the NY State tax).
- Does the individual treat the new state residence as their permanent home? To establish your new state residence as your permanent and most important home, take steps to physically move your belongings. Transfer furniture, furnishings, clothing and personal effects from your current state residence to your new state residence. Consider selling or contributing items that you do not wish to take. It is also advisable, if you are retaining your residence in the old state, to furnish your new state residence more substantially than your current state residence.
- Did the individual establish a business presence in the new state? If applicable, open a business office in your new state or establish a bona fide office within your home in the new state. Use business stationary that displays your new state address. This step is particularly relevant for entrepreneurs and business owners.
- Does the individual spend the majority of the year in the new state? To establish your residency conclusively, aim to spend most of the year in your new state. By ensuring that your presence in your new state exceeds that of any other state, you solidify your claim to residency.
- Are holidays and family events celebrated in the new state? Celebrate religious holidays, national holidays and special family events in their new state.
- Where are the individuals near and dear items located? All your near and dear items, such as artwork, antiques, and other collectibles, should be stored in the new state.
- Where do other immediate family members reside? Where your family resides, particularly your minor children, is a very important factor that the state considers in determining one’s domicile.
- Did the individual change their driver’s license, automobile registrations and place of voting to the new state? Make the change. Update your life.
Statutory Residency Test
- 183-Day Count:
For purposes of the greater-than-183-day count portion of the statutory residency rule, any part of a day spent in a state is considered a day. There are certain exceptions to the day-count general rule (such as overnight medical days and travel through the state), but these are very limited in nature, and are scrutinized closely by auditors. As a taxpayer, you carry the burden of proving the days you were/were not in the state. Auditors may ask for cell phone records, credit card statements, and E-ZPass statements to prove your whereabouts on a daily basis.
- Maintain a Record of Your Time:
Keep a diary indicating where you spend each day or week. It is crucial not to spend more than 183 days in your previous state (if you retain a residence there), as exceeding the limit could result in being considered a statutory resident. Although credits may be available to taxes paid to the second state, there are various limitations on the applicability of the credit.
We suggest that individuals engage in following these steps to help establish that a change of domicile and residency occurred. States look at everything together, and not one specific factor alone, to determine whether a change of residency has occurred.
If you have any questions, we'd like to hear from you.
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