Where a person lives is considered their domicile and he or she may have as many residences desired. For instance, you may live in your “home” for a period of time during the year, spend summers at your beach house and winters in your ski chalet. However, you may have three residences but only one domicile.
The domicile is determined by where you spend most of your time. In order to establish it, the typical rule is that six months and one day of use of the property determines your domicile, and anything less than that is less than one-half year. In addition to the use and time spent in your domiciled residence, the taxing authorities normally look to determine other issues such as where you vote, where your car is registered, where you attends your house of worship, and to whom contributions are made on a charitable basis. There is no one determinable factor that conclusively establish your domicile, but rather, all of the factors combined are considered.
Domicile is usually important for determining where you will be taxed, both for income and estate tax purposes. Usually, this is important if you have sufficient income relative to domicile affecting taxes. For example, in Connecticut the income tax rate is approximately 5% but there is no income tax in Florida, (although there is an intangible tax.)
Naturally, a significant consequence of domicile will be where you pay estate taxes upon your death. Again, a state such as Massachusetts, which has a threshold of only one million dollars, as compared to Connecticut, which has a threshold of two million dollars, compared to Florida, which has no estate tax, is important if you have greater than one million dollars in assets.
Normally, the IRS is not in a position to care where you were domiciled, since federal tax laws do not vary from state to state. However, each individual State will be concerned with domicile relative to its attempts to collect as many dollars as possible, both during your lifetime and at death.
In a recent audit by a state where domicile was in question, the State looked at all of the aforementioned factors and additional areas such as phone bills, charge card statements and bank statements. The state was attempting to establish that the person made cell phone calls from another state as opposed to the state within which the taxpayer was attempting to claim domicile.
In addition, the state looked at charge card statements to determine dates and where charges were made by the decedent. They also reviewed bank statements to determine where withdrawals were made from ATM machines. And consideration was given to records such as plane tickets and gasoline credit cards to establish where the taxpayer actually was at any given time.
In short, before attempting to change domicile, it is vital to dot your “I’s” and cross your “T’s”, as well as review the requirements of each state with both counsel and a qualified accountant to ensure that your intents and purposes will be fulfilled. If not, both states could tax the you as a resident, (not a non-resident.) This would cause taxes to be due in two jurisdictions, which is not what you want.
By: Hyman G. Darling, Esquire
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