Due to the disparity between tax rates of different states, many taxpayers from high-tax states, such as New York, are moving to states with lower tax rates, such as Florida. Moving to another state for tax purposes sounds easy, but it is not that simple. These high-tax states view fleeing taxpayers as lost revenue and will act in order to continue receiving tax dollars. The primary weapon these states use is the residency audit. When under a residency audit, the taxpayer must prove that they’re new home is actually their new permanent home. This goes further than just living in a state for at least 184 days during the year. A taxpayer must prove a connection to this state.
It’s possible that any taxpayer who makes the move from a high-tax state to a low-tax state could be a target for a residency audit. It’s harder for a taxpayer to form a defense if they still have a home or business in their old state, if they moved right before selling a business or a large amount of stocks, and if they are in a high tax bracket. There’s a high chance that high tax bracket taxpayers are going to be subject to a residency audit if they make the move away from their old state. Residency audits have proven to be a significant source of income for states. New York received around $1 billion through residency audits between 2013-2017. Less than half of the taxpayers who have subject to residency audits have been able to win their respective cases. It is reported that states have been able to collect about $144,000 per audit on average.
Spending 183 days outside of a taxpayer’s high-tax state does not necessarily clear someone during a residency audit. If they spend 183 days outside of their state, but they spend less time in a particular place than their old state, then they could still be considered a resident of the high-tax state. It is advised that taxpayers spend twice as much time in their new state than in their old state. In order to determine your real residency, auditors will check if you still see doctors in your old state, if you celebrate holidays there, and if your valuables, such as photo albums, are in your old state. It is also advised that taxpayers create a paper trail in their new state by getting a new driver’s license, updating their vehicle registration, and changing their mailing address. It is important that taxpayers are informed and consult with a tax professional before making such a move to a state with lower tax rates
If you want more information on residency audit or need help with your taxes, please contact or call us at (201) 692-1600.