Snowbirds and Taxes
Where you live and where you are taxed.
Many folks like to spend the cold winter months in Florida, or some other warm state, and return to northern climates for the summer. Many of these folks think that their tax status is determined by the number of days spent in each location and claim residency in the state where they spent the most time. This is not so.
We need to define some terms to understand the correct answer: domicile, statutory resident, and resident and nonresident.
Domicile is “the place where a man has his true, fixed and permanent home and principal establishment, to which whenever he is absent he has the intention of returning.” A person can have only one domicile at a time, no matter how many residences he owns.
Once a person acquires a domicile, he retains that domicile until another domicile is acquired. A change of domicile requires:
- abandonment of a prior domicile,
- physically moving to and residing in the new locality, and
- intent to remain in the new locality permanently or indefinitely.
If a person moves to a new location but intends to stay there only a limited time (no matter how long), his domicile does not change.
Your state of domicile determines
- to which state you pay state income taxes,
- where your will is probated and where your estate will be administered,
- to which state your estate pays inheritance and estate taxes, and
- which state’s laws govern the enforcement of judicial orders.
Most states define domicile as the locality in which a person intends to make their fixed and permanent home. A person can only have one domicile at a time. Once a domicile is established, such location will continue to be his or her domicile until the person can show “with clear and convincing evidence” that they have changed their domicile to a new location.
The most significant challenge a person has in supporting a change in domicile is proving “intent.” For example, if a person sells his existing New York home (without replacing it with another home in New York) and purchases a home Florida, there should be little doubt that the person’s intention is to change his domicile to Florida. However, if the same person retains his New York home and purchases a home in Florida, determining the person’s intentions becomes much more difficult. Many states, including New York, look to five factors to determine a person’s intent when the person has multiple homes:
- size and value of homes;
- business connections in the state;
- location of items of sentimental value;
- time spent in a given location, and
- location of family.
In addition to “intent,” there are other “points of evidence” states look to when determining if an individual has changed domicile, including:
- new driver’s license
- change of address announcements
- re-registering cars
- registering to vote
- and more
Many tax advisors consider this type of evidence as “window dressing.” That is, just having this evidence, without the intent, will likely not reach the “clear and convincing evidence” standard held by most states. However, without obtaining the window dressing, a state will likely deny the change in domicile without looking at the person’s intent.
A person can change his or her domicile but still be taxed for income tax purposes as a resident if the state has a special law so providing. This is known as being a statutory resident. For example, under the law of New York State, a statutory resident is a person who is not domiciled in New York State, but maintains a “permanent place of abode” in the state, and who spends more than 183 days of the taxable year in the state.
The State of Maryland has a similar provision for statutory residency for income tax purposes in its laws. In addition, Maryland has reciprocal agreements with Pennsylvania, Virginia, West Virginia, and the District of Columbia. Except for differences set forth in the agreements, nonresidents from these jurisdictions are exempt from taxation on the wages, salary, and other compensation for personal services rendered in Maryland, and Maryland residents are exempt from taxation on wages, salary, and other compensation for personal services rendered in those jurisdictions.
Resident and Nonresident
A resident is a person who is domiciled in or a statutory resident in a state. If an individual is a resident of a state, that state is able to tax all of the individual’s taxable income. A nonresident is any individual who is not a resident. A state can require a nonresident to file and pay state tax if the individual receives income sourced from such state.