Moving to a Lower Tax State

CONSIDERING A MOVE TO A LOWER TAX STATE? HERE’S WHAT YOU NEED TO KNOW

One of the factors motivating many individuals and businesses to move to Nevada is the hospitable income tax climate which prevails in the State. Nevada imposes no state income tax on individuals or on business entities. Individuals often research purchasing a primary residence on the Nevada side of the lake due to the potential tax benefits.

For clarification; California law defines a resident as an individual who is (1) domiciled in the state, and who may be outside the state, periodically, for a temporary or transitory purpose, or one who is (2) in the state for other than a temporary or transitory purpose. In general terms, an individual can become a nonresident by acquiring a “domicile” (primary residence) in Nevada, begin living there on a regular basis, and, thereafter, limit their time spent in California.

The underlying theory of residency is that one is a resident of the place where one has the closest connections. The strength of those connections, and not just the number of connections, is of considerable importance in determining the state of residency. The determination of residency is completely subjective. In publication 1031, Guidelines for Determining Resident Status, the State outlines the following factors it considers in determining a taxpayer’s closest connections: • Amount of time you spend in California versus amount of time you spend outside California. • Location of your spouse/RDP and children. • Location of your principal residence. • State that issued your driver’s license. • State where your vehicles are registered. • State where you maintain your professional licenses. • State where you are registered to vote. • Location of the banks where you maintain accounts. • The origination point of your financial transactions. • Location of your medical professionals and other healthcare providers, accountants, and attorneys. • Location of your social ties, such as your place of worship, professional associations, or social and country clubs of which you are a member. • Location of your real estate and investments. • Permanence of your work assignments in California.

Changing your state of residence for income tax purposes can be simple or complex. Whatever the situation, it is important to be thorough. Your residency can be challenged by the authorities and the burden of proof of a change in residence falls on the taxpayer, so maintaining appropriate documentation is crucial.

If you are considering making a move from a high tax to lower tax state, there are several steps you can take to help solidify your residency and benefit from the new tax climate. An experienced tax or legal professional can help you outline crucial steps to take as part your specific relocation process.

The information presented is general in nature. In evaluating the overall personal economic implications of any change in residency, including specific Federal and State income tax consequences, the reader should consult with qualified financial and income tax advisors in order to assist in the assessment of the specific financial and income tax consequences which would apply to the reader’s specific situation.

Contributed by Ashley Quinn, CPAs and Consultants, Ltd. 775.831.7288

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