Tax Help: State Residency and Domicile Issues
Residency is the area that creates the most problems in doing not only the home state return but the returns of other states. If all states would treat residency the same, it would be easy, but they don’t!
The term “domicile” and “residence” are often used synonymously in our everyday discussions, but for tax purposes, the two terms have distinctly different meanings. Residence in a strict legal sense means merely a “place of abode.” An individual may have many residences, or physical dwellings in which he resides, but can have only one domicile, or that permanent residence to which he intends to return.
A review of states residency requirements show that 28 states use some definition of domicile to determine if a taxpayer is a resident. If you move to another state and it is for a short time only, your domicile does not change. Short time can be anywhere from a month or two or up to a year or more. To make a change in domicile permanent, you must combine the acts of making a change in domicile along with the intent to change your domicile. Sometimes the intent is there but the acts the taxpayer makes do not indicate that they are making a change in domicile. For example, have they changed their driver’s license to the new state? Have they signed a lease or purchased a home? Enrolled children in the local schools? Registered to vote in the new state?
Some states tax a person even though that state is not the taxpayers domicile. They do this by making you a resident of the state after you have been in the state for a certain number of days. This means you are taxed on your income in the states in which you have your domicile and also in the state where you have your residency. Let’s look at Minnesota for an example. Residency is generally defined by two rules: Domicile (permanent residency), OR the 183-day rule (a day counting rule).
Some states will say that the taxpayer must maintain a permanent place of abode in the state AND spend the required number of days in the state. Permanent in this definition does not mean that you must have a long-term lease or own the property. It merely means that it is a fixed quarters as opposed to something more mobile like RV or a boat with living facilities. The following states have a day counting residency rule: 183 days; CT, DE, DC, IA, KY, ME, MD, MA, MN, MO, NJ, NC, PA, RI, UT, VA, WV. New York is 184 plus maintaining a permanent abode at least 11 months. NM 185 days, HI & OR 200 days, and ND 210 days.
States are getting pickier in applying domicile rules. CPAs, Enrolled Agents, tax practitioners and their associates who meet with clients on this issue, should make sure they are up to speed. For a deeper dive into issues dealing with State Residency rules, consider attending the live webcast, Dealing with State Residency and Domicile Issues on February 28.
Information in this blog provided by William Roos, EA.
by Sue Anderson - Based on 30 years of experience in continuing education for accountants. Currently program director for online CPE provider, CPE Link. Formerly with the California CPA Education Foundation managing key operational areas including marketing, program development, and distance learning.