Tax And Legal Issues When Moving To A New State

By: Todd Hall

9/16/2019

When moving from one state to another, it is important to keep in mind a couple key concepts that can have significant tax and legal implications.

State of Domicile

A person’s domicile is generally defined as a person’s fixed, permanent and principal home that they reside in and that they intend to return to and/or remain in. Your state of domicile impacts everything from income taxes, to creditor protection (e.g. which state’s asset protection rules can be relied upon), to matters of family law (e.g. guardianship over children and the rights of a spouse in a divorce). A person can only have one state of domicile. Your state of domicile has the right to tax your worldwide income.

State of Residency

A person can be considered a resident for tax purposes in multiple states at once. Several states have statutes that spell out the facts and circumstances that would make someone a “statutory resident,” and some of the statutes are rather vague.

When moving from state to state, in order to avoid owing taxes in both states, you will want to establish strong ties to the new state, and sever as many ties to the old state as you can. Because the rules vary from state to state (and some are somewhat subjective) there is no definitive set of actions to take that will work every time. The best you can do is to demonstrate, with as many facts and circumstances as possible, both of the following:

  1. You intend to make the new state your primary home, and
  2. You are no longer a resident of your old home state.

To accomplish these goals, here are some action items to consider:

Action Items to Establish Ties With NEW Home State

  • Purchase a new home
  • Move your family and send children to new schools
  • Register to vote
  • Vote in the soonest possible election (in person, not absentee)
  • Obtain a new driver’s license
  • Register your automobiles
  • Change your car insurance to cover the car(s) registered in the new state
  • Open a bank account at a local bank
  • Get a safe deposit box at a local bank
  • Sign new wills and/or revocable trusts (and ancillary documents such as a power of attorney and health care directive)
  • Select a burial site in your new state
  • Update the situs on any trusts
  • Update any other legal and personal business documents to indicate your new home address
  • Change your mailing address on all insurance policies
  • Change your address with the Social Security Administration
  • File a “Declaration of Domicile” or similar document if the state has such a procedure
  • Become a patient of a local primary care doctor, and have records sent from your old doctor’s office
  • Become a patient of a local dentist
  • Purchase internet and cable for your new home
  • Claim residency status when filing your taxes
  • Join local organizations such as a gym, a local house of worship, or professional associations
  • Get a library card from the local library
  • Subscribe to local newspapers
  • Forward mail from other locations to your new home address
  • Gather for family holidays and other events
  • Seek some level of employment
  • Give to and get involved with local charitable organizations
  • Update any public profiles you have about yourself that mention where you are located (e.g. LinkedIn)

 Action Items to Sever Ties With OLD Home State

  • Sell all real estate
  • Spend as few days as possible in your old home state. This is particularly important if you maintain a home there. Some states have statutory rules that automatically make you a resident for tax purposes if you spend a certain number of days there.
  • Document the days you spend in each state. Consider an app for your phone such as Monaeo to help keep track of days spent in each state.
  • Cancel memberships (e.g. gym, house of worship, library)
  • Remove your name from voter registration rolls
  • Close bank accounts in local banks
  • Cancel any safe deposit boxes in local banks