Originally published on Forbes.com July 29th, 2013
Florida is the state tax haven of the East Coast. My covivant was just telling me that one of her contra dancing partners was trying to make a case for New Hampshire, because New Hampshire makes it easier for you to become a resident. Putting aside that New Hampshire’s reputation as a tax haven is overrated, thanks no doubt to those “Live Free or Die” license plates (There are the Interest and Dividends Tax, Business Enterprise Tax to consider), CV’s friend misses the point. Except when you are trying to qualify for in-state tuition, the problem is not getting a no-income-tax state to accept you as a resident. The problem is convincing the high tax state you are escaping that you have made a clean break.
Donald and Rose Lieberman just learned from a decision of the New York Division of Tax Appeals how hard it is. The Liebermans spent much of the year in a home in a neighborhood of Queens called Malba. Perhaps with a bit of hyperbole, according to this story, Malba is called by some, the “Beverly Hills of the East Coast”
“The beauty of Malba is that it’s one of the few neighborhoods in Queens where you get a good amount of land with your property,” Mr. Slavuter said. “The average-size lot for Queens is 40 by 100, but in Malba you find lots two, three, four, even five times that size.”
From the viewpoint of Central Massachusetts, that statement is hilarious. OMG – almost a half acre – we’re going to need a grounds crew. I grew up on a 37 by 100 lot in Fairview, NJ, though. Our neighbor’s house, which was on a double lot appeared to have a vast lawn adjacent to it. Malba has some sort of self governing neighborhood association and controls some waterfront. Sounds like a lovely place to live.
The Liebemans transferred their Malba home to a QPRT in the nineties. When the QPRT ran out, they continued to live in the house paying all the expenses and $600 per month in rent to each of their three children. Excellent estate planning there. It doesn’t help at all for state income tax purposes, though.
They also owned a home in Boca Raton.
Domicile
New York had two theories on which it could tax the Liebermans as residents. Sorry to spoil the suspense, but the state won on both grounds, which will probably make an appeal challenging. The stakes were pretty high, $136,692 including penalty and interest. The amount covered the years 2004 and 2005.
Domicile is the more challenging to understand. It sometimes seems to border on the mystical.
A domicile once established continues until the individual in question moves to a new location with the bona fide intention of making such individual’s fixed and permanent home there. No change of domicile results from a removal to a new location if the intention is to remain there only for a limited time; this rule applies even though the individual may have sold or disposed of such individual’s former home. The burden is upon any person asserting a change of domicile to show that the necessary intention existed. In determining an individual’s intention in this regard, such individual’s declarations will be given due weight, but they will not be conclusive if they are contradicted by such individual’s conduct. The fact that a person registers and votes in one place is important but not necessarily conclusive, especially if the facts indicate that such individual did this merely to escape taxation.
My friend Phil Dardeno, who works a lot on domicile cases, once explained to me that your domicile is the place where the family pictures are. He tells his clients that if the Massachusetts DOR agent were to ask them what color the sky was, they should answer that the sky in Florida is a blue like no other. If you are renouncing New York for Florida and you like basketball, start rooting for the Orlando Magic. Forsaking the Yankees or the Mets, for the Tampa Bay Rays would be above and beyond, but you should at least consider it.
The Everglades, spring break, Disney World, alligators taking care of all those stray cats, water-skiing, right to carry. I know, my pitch still needs some work, but that is the gist of it. Florida is a magical wonderland and it breaks your heart that you have to come North to take care of business so much is the right attitude. None of this Florida is warm in the winter and does not have a state income tax. That’s incidental.
The Liebermans just could not articulate the enchantment that called them to be Floridians:
Although petitioners may have registered to vote in Florida, obtained driver’s licenses and registered their cars there, there is little convincing evidence as to petitioners’ intent to abandon their New York State domicile and acquire a new one in Florida. In fact, the pattern described by petitioners was that of traditional snowbirds. They left the inclement weather of the northeast winters as a respite for their medical conditions, returning in the spring to the home in Malba where they kept their clothes and furnishings. It was from that home, their domicile, that they visited family and Mr. Lieberman tended to his significant business ventures. What is glaringly missing, other than the purchase of houses in Boca Raton, was any evidence of an intent to change their domicile to Florida. There was no mention of a daily routine in Florida, much less a social life. There was not a range of sentiment, feeling and permanent association established with Florida.
Residence
New York had another way to hook the Liebermans. Even if they had been able to establish Florida domicile, the still might be “statutory residents”. That is a nasty rule. It is called the New York rule, but other states, Massachusetts included, have adopted it. If you have a place to stay in New York and are in New York more than 183 days (and a day means any part of a day unless you are in transit between two places outside of New York), you are a statutory resident of New York. Thanks to the New York rule, you can be a full-year resident of more one than state.
The statutory resident rule is mechanical, once the place to stay piece is established, but the burden is on the taxpayer. If you are going to cut it close on that rule you should keep a really good log and cross reference it to documents, if at all possible- restaurant receipts for example.
The Liebermans cut it close and compounded the problem with weak logs.
Petitioners submitted a calendar page for each month from January 2004 through December 2005 that indicated the whereabouts of petitioners for purposes of a day count with respect to the issue of statutory residency. In addition, the Division was able to review various bills and statements that substantiated petitioners’ location on particular days during the audit period. For the year 2004, the Division determined that petitioners’ days in New York totaled 186, with 19 New York days in dispute. For the year 2005, the Division determined that petitioners’ days in New York totaled 199, with 35 New York days in dispute.
It Is Not Easy
If you are not going to entirely cut your ties to a high tax state, be prepared for an uphill battle if you try to claim residence in a different state. Study up on why you love your new home beyond its favorable tax regime and keep a good log.
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