Early this year professional golfer Phil Mickelson, reacting to the increases in tax rates for high income earners, remarked that he would be paying over 60% in taxes.  According to Sports Illustrated Lefty made upwards of $60 million in prize money and endorsements in 2012.  With the new Federal tax legislation, Obamacare taxes and a 13.3% California rate Lefty is not too far off the mark in his assessment of his combined marginal tax burden.  The advice to Phil was to move out of California to a low or no tax state like Florida and save millions.

New York, with its top rate of 8.82% along with the elimination of most itemized deductions for high income taxpayers is not exactly a tax haven.  There are six states, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming that have no income taxes. Tennessee and New Hampshire only tax interest and dividends.  With the cold weather and snow one may think about leaving New York for friendlier climates, both temperature and tax-wise.

Leaving New York is not always as simple as staying out of New York for 183 days each year.  New York will look to whether you have effected a genuine change in domicile and look beyond the mere statutory residency requirements based on number of days in New York State.  New York looks to where a person is domiciled – the permanent residence where the person intends to return.  A person can have several residences but only one domicile.

The New York State Department of Finance and Taxation published updated Nonresident Audit Guidelines in June 2012.  Much of the determination of residency is based on facts and circumstances and supported by case law going back to the early 1900’s.   With modern transportation and communication we are an increasingly mobile society and as we acquire wealth it is not unusual to have two or more residences.  The burden of proving the change in domicile is on the taxpayer.  They must demonstrate by clear and convincing evidence that they have changed domiciles by unequivocal acts.  

New York will look at a number of different factors.  One primary factor involves homes maintained and used by the individual, comparing the nature of use, value and size of a New York home to one out of state.  Did the taxpayer go from a four bedroom 3,000 square foot house to a two bedroom condo with an efficiency kitchen?  Is the residence more in the line of a vacation or seasonal home?  If the only New York residence is a camp in the Adirondacks without heat, then the individual will likely not be domiciled in New York.  Is the home owned or rented?  If the house is leased, is it a short term lease or an annual lease that is renewed each year? 

Another primary factor is an individual’s business involvement in New York.  The State will look at the pattern of employment and any active involvement in a New York business or profession.   The fact that the individual spends the majority of time in Florida but is in constant contact and actively involved in a New York business while in Florida will not be persuasive to New York Courts that you are a non-resident of New York.  In the Matter of Richard E. & Jean M. Grey, a businessman from Fayetteville was pulled back into New York based on his own testimony.  He indicated that while he spent time outside of New York, he was “deeply, deeply involved” in the operation of his company until it was sold in 1987.  The Court determined that based on his level of involvement in the company he was still a New York resident.  With modern technology it is even easier to work remotely and still be actively involved in the day-to-day management of a business that may pull you back to New York.

Another primary factor is the amount of time spent in New York compared to other locations.  This is where you need to prove by credible evidence where you are spending time.  New York will look at phone records, credit card and EZ Pass statements.  It is up to the individual to demonstrate where they are spending their time and they should maintain a diary that can be supported by contemporaneous records.

Another primary factor is the location of items near and dear to the individuals.  A New York auditor will be looking at where valuables are located.  Artwork and photo albums and important documents generally are associated with where you are domiciled.  The audit guide indicates that antique furniture may not necessarily move as it may not be appropriate for the new residence.  What may be appropriate for a home in Upstate New York may not fit the décor of a home on the Intra-Coastal Waterway.

The last primary factor that New York will look into is the family connection.  New York will look at where the immediate family is located.  The location of the minor children’s school will be an important indicator.  Claiming in-state tuition for a SUNY school would not be a wise decision for those trying to get out of New York.  If you have family located out-of-state that will tend to support your move out of state.  If you have strong family ties to New York and spend winters down south but all the holidays and summers “back home” with your family then you will likely be pulled back into the state.

When the auditor has evaluated these primary factors he will look at other factors as well.  Where you are registered to vote, where your vehicles are registered, obtaining an out of state license and giving up your STAR exemption (very important) will be considered.  New York will look to banking relationships, club affiliations, health care providers and important legal documents such as your will, which indicates your residence.  It is important to note that the pattern of your charitable giving, by statute, will not be a factor in determining residency.

If you manage to escape from New York you may still be liable for New York Income Tax.  If you have a New York based investments in partnerships, S-Corps or real estate then any New York based income will be subject to tax in New York to be reported on a non-resident return. If Phil Mickelson wins the PGA Championship this August at Oak Hill, he will be paying tax to New York on those earnings.   

State residency rules are a very complex area.  It is largely a facts and circumstances argument that will ultimately be determined by a judge.  This is an area that New York is very actively involved in auditing and where they have always taken an aggressive stance.  New York State knows that people move with taxes in mind and it is the wealthy taxpayer that can afford to easily change residency.  Famous recent tax émigrés such as Rush Limbaugh and Tom Golisano have to be prepared to prove their case.  This is a target rich environment and New York is well armed and they are working in the home-town court system.  If you are planning on a move, by all means contact your Dermody, Burke and Brown professional to plan your move properly.

The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.