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By Dianne Richoz Barclay, CPA, Paneth, Haber & Zimmerman LLP

Do you know where you live?

For many, it may not be such a startling question. With the proliferation of second/vacation homes, multistate business interests, migrating retiree's, and a wide variety of state laws governing who is or is not a resident or domiciliary, many individuals may not realize that they "live" or are legally resident for income or estate tax purposes in more than one state.

Each state's definitions of domicile and residence can vary appreciably so that an individual may qualify in more than one location. Even Webster is confused on this topic. Domicile is a "person's fixed permanent and principal home for legal purposes" or "residence." But residence as defined in this same lexicon is "the place where one lives as distinguished from his domicile." So which is it?

For many people, their domicile and residence will be the same place. But for various frazzled others, where they rest their heads on a majority of nights may be just the tip of the iceberg in a long list of residences. Problems tend to arise when an individual purchases a second home in a different state.

An example, let us take Martha and Elmo Bright, who are currently New York domiciliaries and residents. They both work in the City and own a co-op apartment. They have a second home in Vermont, where they spend approximately half of their weekends and an occasional holiday week throughout the year. Elmo will begin working in Connecticut next year, and they would like to purchase a home there and become Connecticut residents. However, they do not plan to sell their New York co-op as Martha plans to continue working in the City and will spend some weeknights in town. Regardless of domicile, Martha will be taxed as a New York resident because she maintains a permanent abode there and will, as a result of working in the city, be present in the state more than 183 days a year. Elmo will be taxed as a New York resident if he is a New York domiciliary, because he has a permanent place of abode in New York, regardless of the number of days he actually spends in the state. [NY Tax Law section 605(b)]

As the Brights do not intend to sell or rent out their New York home right away, it is important that Elmo effectively change his domicile from New York to Connecticut in order to reap the income tax (and other) benefits of living and working in Connecticut. How do Martha and Elmo become domiciled in Connecticut and cut the cord with New York?

How to Change Domicile

In order to create a change of domicile, both the intention to make a location a fixed and permanent home and actual residence at that location must be present [Matter of Minsky v. Tully, 78 AD2d 955]. Intention is at the crux of New York law: Reg. section 105.20(d) states that "Domicile is, in general, the place which an individual intends to be such individual's permanent home--the place to which such individual intends to return whenever such individual may be absent." However, there is no easy way of ascertaining what an individual's intentions are outside of evaluating their conduct. The burden falls to the individual asserting a change of domicile to show that the necessary intention existed.

While there are no hard and fast rules to follow, a preponderance of evidence that is "clear and convincing" of an intent to change one's domicile is sufficient in most cases to establish both domicile and residence for income and estate tax purposes [Bodfish v. Gallman, 50 AD2d 457]. If a taxpayer intends to maintain homes in two or more states, it is important to firmly establish his intended domicile in the state of his choosing. The following guidelines, while not the only factors, are found to be indicative of where an individual is domiciled:

1. The home and furnishings in the state of intended domicile should be equal to or better than the houses or apartments maintained elsewhere.

2. A significant amount of favorite possessions should be located in the state of intended domicile (referred to as "items near and dear" in the Income Tax District Office Audit Manual for New York).

3. The address in the state of domicile should be used for as many of the following as possible:

a. school registration for children

b. all social and fraternal organizations

c. all professional associations

d. vehicle registration

e. driver's license

f. filing income tax returns (both

Federal and state)

g. executing a will

h. Social Security payments

i. insurance policies

j. passport renewal

k. credit card bills/magazine


4. Register and insure all vehicles in

intended state of domicile.

5. Apply for a driver's license.

6. Register to vote and do so at first


7. Notify board of elections in state of

prior domicile to be removed from the

voting rolls.

8. Transfer safe deposit boxes, savings

and checking accounts.

9. To the extent possible, become a

nonresident member of clubs and

churches in other than the state of

intended domicile; establish resident

memberships in the intended state.

10. Visit local doctors and dentists.

11. Move family members--the

location of close family members,

particularly minor children and a

spouse, is a strong factor in

determining domicile.

12. Establish friendships and socialize in

the new "home" state.

13. File appropriate returns and pay

taxes in new domicile.

14. In the case of New York City dwellers, give up its parking tax exemption certificate.

We Have Moved.
What Must We Do?

Once the Brights have purchased their new home and Elmo is working in Connecticut, they should file a joint Connecticut income tax return as residents. Martha will need to file separately as a New York resident, but should use her Connecticut address on the return. She will receive a credit on their Connecticut return for taxes paid to New York to the extent of the Connecticut liability on New York source income (wages). The Brights do not currently have significant investment income. They should, however, carefully consider any investments held in Martha's name or jointly, as the income on these amounts is potentially taxable in both New York and Connecticut. A short-term solution would be to transfer income producing assets to Elmo's name and appreciating assets with low or no dividend income to Martha's.

Because Elmo still has a permanent abode in New York, the burden under a residency audit would be placed on him to prove that he was not in the state for more than 183 days during the year. Therefore he must maintain adequate records to establish his whereabouts every day of the year. The following documentation should be retained: 1) A diary indicating whereabouts on every day of the year. 2) Travel records, including passport entries, plane tickets, and hotel charges. 3) Credit card receipts for purchases and meals outside New York. 4) Telephone records showing calls made from outside New York. 5) Any other records that indicate presence outside New York. Also any day in which an individual is in New York only to board a plane, train, or bus does not count as a day in New York for the residency test [Reg. section 105.20(c)].

Additionally, Martha should spend as much time as possible--including evenings and weekends--in Connecticut, to strengthen the case that the Brights have changed their domicile. Whenever possible, she should commute to her job in New York from their Connecticut home.

Have We Succeeded?

How do the Brights now stand for estate tax purposes? While Connecticut and New York law are very similar with regard to the criteria for domicile and residence for income tax purposes, they vary in one significant aspect for estate tax purposes. New York subjects the estate of any decedent who was domiciled in New York at the time of death to tax. Connecticut imposes its succession and estate taxes on the estate of any decedent who was a resident at the time of the death. If the states' definitions of a resident estate for estate tax purposes were switched, Martha's estate would be in danger of being taxable in both New York and Connecticut. However, as long as the Brights are successful in establishing their change of domicile from New York to Connecticut, only real and tangible property located in New York would be subject to estate tax there. But because New York looks to domicile, which, as we have illustrated is somewhat subjective, it is crucial that all of the criteria are carefully followed for establishing a change of domicile.

It is no easy matter to establish a new domicile when an individual still has significant ties with the state of previous domicile. Remembering that the burden will always fall on the taxpayer to prove intent, a change of domicile should not be entered into capriciously, but only if the taxpayer truly intends to be a resident of another state and have the primary focus of his or her life in the new state. The upheaval created by a genuine effort to establish a new domicile needs to be weighed against any other perceived advantages, whether monetary or intangible. But if intentions are "honest, one's actions genuine, and the evidence to establish both clear and convincing," [Court of Appeals, Matter of Newcomb, 192 NY 238, 250-251] go ahead and make the move! *

Milton Miller, CPA

Contributing Editors:
Alan Fogelman, CPA/PFS
Clarfield & Company P.C.

William Bregman, CPA
A. Kozak & Co.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

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