The Duffey Law Firm Blog

Tuesday, June 30, 2009

New Florida Residents

Residency & Domicile

Perhaps you recently moved to Florida, perhaps you’ve had a residence in Florida for years, but recently have decided to change your domicile from your former Northern state (New York, Pennsylvania, Massachusetts, New Jersey, etc) to Florida  – what do you need to do in order to change your domicile so that you can avoid your “former” Northern state’s taxing regime?

Many new Florida residents get advice from their new Florida friends, bridge partners and golf buddies, that the only issue they need to be concerned about is the “Day Count.”  This can be an example of where a little bit of knowledge can be a dangerous thing.  It is true that many Northern jurisdictions utilize a “Day Count” however it is critically important for those that are trying to escape the taxing regime of their “former” Northern jurisdictions to understand that the “Day Count” is only one test, and even at that, if you do not have a clear understanding of exactly how the Day Count works you could easily fail the Day Count test.  But even if you pass the Day Count test, you may fail the lesser known but equally important Domicile Testfailing either test could cost you thousands (in many cases millions) of dollars in taxes!

Properly establishing domicile in Florida is not a difficult thing to do when you understand the rules.  However, it can be a disaster if you either don’t know or don’t understand exactly how the Domicile rules work.  The mistake most new Florida residents make is not having a clear understanding of  exactly what they have to do in order to properly extract themselves from the taxing jurisdiction of their former Northern state.

At the Duffey Law Firm we have had the good fortune to work with many clients who have relocated to Florida from other states.   Most share a few common goals – to escape the cold dreary winters and to enjoy the beautiful weather and lifestyle of living in Florida.  But for many, there is a very important additional benefit to becoming a Floridian – when done properly, establishing your domicile in Florida means that in many cases in addition to escaping from the bad weather, you may escape the taxing regimes of your former state.

In most cases it is easier to escape the cold than it is to escape the cold hearted Tax Man.  New Florida residents must understand that there are two completely different sets of rules that operate in this area of the law.  First, you need to understand and follow the Florida rules of establishing domicile in Florida.  Second, you need to understand and follow the rules of your former state in order to ensure that you will no longer be considered a resident of your former state.  Clients often are shocked when they learn this.  Often, we will get the question; “Does that mean that I could be considered to be a resident of both, New York and Florida – at the same time?”  And the answer to that question is YES!  A U. S. Supreme court ruling holds that a citizen can be considered a resident of several different states by those several states all at the same time (under certain facts & circumstances).

Therefore, the key to properly establishing your domicile in Florida requires that you also make certain that you have satisfied the rules of your former state with regard to terminating your domicile in that state.  This is a two step transaction and it is important for you to know what is required under both steps in order for you to successfully accomplish your goal.

Most Northern jurisdictions follow similar rules with respect to residency, however each client’s situation must be reviewed on a case by case bases as these matters are not only State specific but often very fact specific as well.  Most states will consider a Statutory Resident Test as well as a Domiciliary Test.  The Statutory Resident Rule is the one that most people in Florida refer to when they talk about the Day Count Test; thus this is the so called “183 Day Count Test”.  What some people don’t realize is that when NY (or just about any other Northern taxing jurisdiction) counts a day, they count any part of a day.  Which means, if your flight into JFK, lands at 11:55 PM on Thursday, and you get into a cab at 12:05 Friday, before you pay for the cab ride, you’ve spent two (2) days in New York for purposes of the 183 Day Count Test.

Another trap we see people get caught in is in the area of burden of proof.  When you claim to have spent X number of days outside the state of your former domicile, you are the one that must prove that as a fact.  Your former state of domicile doesn’t have to prove you were physically in the state.  This may seem like a subtle issue to some, but it can be enormously significant.  Some clients wonder how their former states can challenge any assertion regarding what days they were or were not physically in the state.  Some are surprised to learn that the Northern jurisdictions have subpoena powers in these matters and they routinely use them.  Clients have seen their credit card records pulled, their Easy Pass records, cell and home telephone records, etc.

While the Statutory Residency Test focuses on only two areas; (1) residence and (2) the day count, the Domiciliary Test focuses on five; 1) residence,(2) days spent physically within the state note this is very different than the Statutory Residence Test day count), (3) place of business, (4) “near & dear” and (5) family.  Both of these tests have many different elements and when the rules are applied to different facts and circumstances, it can get quite complex.

Establishing domicile in Florida and leaving the state of your former residence requires a knowledge of the rules and experience in this area of the law.  This is not a matter that should be left to the advice of friends and neighbors (unless those friends and neighbors are lawyers that understand these laws and are experienced in this area).

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