The holidays are over and many retirees in cold-weather states are looking to migrate south for the winter. For New Yorkers, Florida offers not only sunshine and warmth, but also tax savings for those who intend to no longer make NY their primary home. That is because, unlike New York, Florida imposes no income or estate tax on their residents. It is important that those looking to avail themselves of these tax benefits understand NY’s residency rules and what is required to change their residence in the eyes of the State’s taxing authority. Under New York's rules, residency for personal income tax purposes can be established through one of two tests.

  1. Domicile - Refers to a taxpayer's principal, primary, and permanent home. A person can have many residences, but only one domicile. NY’s Department of Taxation and Finance (DTF) defines domicile generally as “The place which an individual intends to be such individual's permanent home - the place to which an individual intends to return whenever such individual may be absent.”
  2. Statutory Residency – A person is a resident of NY for income tax purposes if: 1) They maintain a permanent place of abode in NY – AND – 2) They spend more than 183 days in NY during the year.

If New York believes a taxpayer is still a resident of the state, despite a claim to the contrary, NY will initiate a residency audit. A residency audit can be triggered 1) when a taxpayer files as a New York nonresident for the first time, 2) when she files as a New York part-year resident, or 3) when she ceases filing NY tax returns altogether. Of course, not everyone changing their residency will get audited. New York typically targets high-income taxpayers for this additional level of scrutiny.

When a taxpayer claims they are no longer a NY resident because they have changed their domicile to another state, NY law requires that the taxpayer prove by clear and convincing evidence, that at some point they – 1) Abandoned the former New York domicile - AND – 2) Established a new domicile in the other state.

This 2-part requirement is referred to as the “leave and land” test. Because the domicile deals with a taxpayer’s subjective intent, the DTF has established 5 objective factors their auditors use to infer intent.

  1. Home - The individual's use and maintenance of a New York residence, compared to the nature and use patterns of a non-New York residence.

    For many taxpayers, the purchase of a home in a new state is a critical event marking or surrounding the change of residency, and auditors always look for this change of lifestyle and intent.
    It is also important to highlight minimized New York connections. If the taxpayer downsizes in New York, sells the historic home but keeps a cottage, or begins renting in New York while owning in the new state, these are all facts of great significance.

  2. Active Business Involvement - The individual's pattern of employment, as it relates to compensation derived by the taxpayer in the particular year being reviewed.

    For retirees, there may be no more active business involvement in NY. However, lingering business interests may require the taxpayer to “source” income back to NY – even if they are deemed to no longer be a New York resident.

  3. Time - An analysis of where the individual spends time during the year. This analysis looks at time from both a quantitative and qualitative perspective.

    - It will be important to show a significant shift in your time pattern, that will point to a change in domicile. It is not sufficient to simply show you spent more time in Florida than in NY, but rather to demonstrate a change in pattern that indicates your intent to make the new state your permanent home.

    You will also want to show that the quality of the time you spend in each state favors the new state over NY. Examples of this include, where do you spend holidays, special occasions, and visit with family and friends.

    - Don’t get caught thinking that as long as you spent less than 183 days in NY that this proves you are no longer a NY resident. While this bright-line test is critical to the “statutory residency” test (see below), auditors will analyze time spent in each state from both qualitative and quantitative perspectives.

    - In the event of an audit, you will need to prove where you were on each day of the year. If you cannot, the auditor can assume the unaccounted-for day was a day in NY.

  4. Items “Near and Dear” - The location of items which the individual holds "near and dear" to his or her heart, or those items which have significant sentimental value, such as: family heirlooms, works of art, collections of books, stamps and coins, and those personal items which enhance the quality of lifestyle. This factor is sometimes referred to as the “teddy bear” test.

    If you are keeping a home in NY, it will be important for you to furnish your new home with the important/sentimental/valuable items from your NY home.

    Auditors often use insurance riders to verify where these items are located.

  5. Family – The family factor in a New York residency audit is supposed to cover only a taxpayer's spouse and minor children - i.e. did both spouses, and or, their minor children move to the new state? However, this family factor is subtly cooked into the other four primary factors.

Other factors that an auditor can look at, after first establishing a basis for consideration of New York as the individual's domicile from an analysis of the primary factors, include:

  • The address at which bank statements, bills, financial data, and correspondence concerning other family business is primarily received.
  • Location of your cars, boats, etc., which state those items are licensed in, as well as your personal diver’s or operator’s license.
  • The state you are registered to vote in, and an analysis of where you actually vote. This review is not limited to general elections, but also your participation in primaries and other off-season elections.
  • The citation of legal documents – which includes the state law your Wills/estate planning documents are drafted under.

While it is important that taxpayers who change their residence actually do these things, generally these aren’t the types of things that are determinative in a residency audit.

Statutory Residency – If a taxpayer successfully proves they are no longer “domiciled” in New York, they still must show they are not a “statutory resident.” Statutory resident challenges mostly center around the taxpayer’s ability to prove they were not present in the state for more than 183 days during the calendar year. Again, it is important to keep good records clearly showing where the taxpayer was each day during the audit period – remember if you can’t prove where you were, the auditors can assume you were in NY.

Leaving New York and establishing residency in Florida is not uncommon and may result in significant tax savings.

Proper planning, including consulting with an attorney (and possibly your accountant) prior to making this change, is important in case you receive a New York residency audit.