Changing Domicile for Tax Purposes: Connections Matter, Not Just Paperwork

By Joey Snyder, Woods Fuller Associate

Many people consider relocating to another state for more favorable tax treatment, such as moving from Minnesota to South Dakota. But it takes more than just physically relocating to successfully change your “domicile,” or legal residence, for tax purposes. If you don’t take the right steps, your old state might still consider you a resident for tax purposes, potentially leading to unexpected tax consequences.

 Moving vs. Maintaining Connections

Many people move to a new state in a straightforward way: They sell their old home, cancel all their memberships, and bring all their personal belongings to their new home. Essentially, they move their whole life to the new state, which usually makes it easier to establish a new domicile there.

Others, however, try to split their time between two states. For example, they may buy a vacation home in Arizona but want to stay connected to their old community, or they may want to reduce state income tax while maintaining property and business ties in their old state. These situations are more complicated, as a recent New York case shows us.

Case Summary: In Matter of John J. Hoff & Kathleen Ocorr-Hoff

A New York Tax Appeals Tribunal (“Tribunal”) considered whether a couple who moved for Florida should be treated as New York residents for tax purposes.

The couple, John and Kathleen Hoff, had lived in New York since 1979 and owned a home there. In 2014, they bought a home in Florida, furnished it, and moved some personal belongings to Florida. In 2018, they filed a formal declaration of domicile in Florida. They also obtained Florida driver’s licenses, registered to vote in Florida, participated in local organizations, and joined a country club.

However, during the years at issue, they retained extensive ties to New York. They kept their New York home and spent more time there than in Florida. Their family was in New York, along with some “near and dear” personal property. They continued using New York accountants, attorneys, and healthcare providers, and kept their New York country club memberships. John also owned a New York corporation. 

The Tribunal held that the couple was still domiciled in New York for the years at issue. Even though the couple intended to make Florida their domicile at some point, their sustained connections with New York outweighed their ties to Florida.

Key Takeaways

“Domicile” is more than paperwork. Buying or renting a home, titling vehicles, updating driver’s licenses, and registering to vote may not be enough to change your domicile for tax purposes. The new state must truly become your primary home, and the old state must be secondary.

Carefully consider your connections. As shown by the Hoff case, courts and tax authorities will consider where you spend your time, maintain memberships, conduct business, keep personal property, and where your pets and family spend their time.  You should engage new legal, accounting and financial advisors in your new state, change your medical providers and where you bank.  All those elements will help to prove you have “really” moved.  Keep in mind that it is the overall picture, not any single factor, that matters. 

Plan properly and proactively. If your goal is to change your domicile for tax reasons, it is important to review the requirements for both your current state and the one you intend to move to. By doing this, you can ensure that you not only establish your new state as your domicile, but also terminate your domicile status in your old state, avoiding a situation like the Hoff’s.