This is part two of an article that addresses the legal and tax factors involved in shifting a taxpayer’s residence or domicile to another state. Part one addressed the New York statutory framework for residency analysis and related matters, as well as the first of five primary factors used in determining an individual’s domicile (the location of an individual’s home). The other four primary factors are discussed below, as well as other factors and part-year residency.

(2) Active Business Involvement. A taxpayer’s employment or active participation in a New York trade, business, occupation or profession, and/or substantial investment in, and management of, any New York closely-held business will usually result in a finding against a change of domicile. It does not matter if the taxpayer’s involvement does not actually take place in New York. However, passive investments in New York entities is not indicative of domicile. The Guidelines specifically state that the fact that funds are left on deposit with a New York bank must not enter into the determination of domicile (presumably on account of concern that New York banks and brokerage firms not lose business to out-of-state entities).

For an owner of a New York closely-held business, compensation may be a factor (given New York source income rules) leading to a finding against a change of domicile. If the business (or at least its headquarters) can be relocated out of New York to Florida (or possibly to another state) prior to relocation, the negative impact of this factor may be able to be turned around, or at least neutralized.

The Guidelines provide that the passive activity loss rules may increase the importance of analyzing a taxpayer’s business ties. For example, a taxpayer may have provided documentation with his or her federal return to substantiate that he or she materially participates in a New York business activity. This material participation may permit the taxpayer to exclude the loss from the passive activity loss limitations. This same activity can also be used to show that the taxpayer has significant New York business connections.

(3) Time. Another factor in the determination of domicile is where the individual spends his or her time during the year. Auditors may ask for diaries, appointment logs and calendars to substantiate time spent in each location. If none are available, or in order to substantiate what is in the diaries, etc., auditors will look at credit card receipts, utility usage, telephone bills, bank information, etc. Auditors look for overall living patterns that show evidence of intended domicile.

Time spent in places other than New York and Florida is not analyzed. It would be problematic if, for example, an individual spends 150 days in New York but only 125 in Florida.

Auditors may verify location with cell phone records and social media use. Auditors will take into account New York refrigerator contents and location of a social club, wealth manager professional, or dentist, although it is recognized that specialized medicine in New York should not be considered. While charitable contributions are not to be taken into account (discussed below), service as a trustee or director of a New York charitable institution may be viewed as a New York activity separate and apart from a contribution to that charitable institution.

(4) Items Near and Dear. The Guidelines instruct auditors to visit the taxpayer’s home in New York and look for items of significant sentimental value, such as family heirlooms, works of art, book collections, stamp and coin collections, and other personal items. These items do not have to be valuable from a monetary standpoint (e.g., photo albums). Also relevant is where family pets are maintained (including veterinarian location and services). The Guidelines instruct auditors to review insurance policies, to determine actual location of items, and told to look at bills of lading to see if sentimental items were actually moved. Auditors are specifically instructed that they must not only look at the items in both the New York and Florida residence and take into account the transfer of near and dear items from New York to Florida.

(5) Family Connections. If the first four factors are not conclusive in determining domicile, auditors will consider a taxpayer’s family connections. Assuming the taxpayer and his or her spouse live together on a year-around basis, this factor often comes into play when there are minor children. For example, if the taxpayer claims to be a Florida domiciliary, but his minor children attend school in New York. A similar issue arises if one spouse relocates to Florida and claims a change in domicile, while the other spouse and family connections remain in New York.

‘Other’ Factors

While the “other” factors are subordinate to the primary factors, they are nevertheless important because they will be looked into if the primary factors are not determinative or if the primary factors indicate that the taxpayer has not changed domicile. It is recommended, especially if a New York home is retained or replaced with another home in New York, that the taxpayer structure as many as possible of these “other” factors to indicate Florida domicile.

The “other” factors are:

(a) The address at which bank statements, bills, financial data and correspondence concerning other family business is primarily received.

(b) Physical location of safe deposit boxes used for family records and valuables.

(c) Location of auto, boat and airplane registrations, as well as the individual’s personal driver’s or operator’s license.

(d) Indication as to where the taxpayer is registered to vote and an analysis of the exercise of voting. In this regard, the auditors are instructed not merely to limit the review to the general elections in November, but also to question the taxpayer’s participation in primary or other off-season elections, including school board and budget elections.

(e) Possession of the New York City parking tax exemption.

(f) An analysis of telephone services at each residence, including the nature of the listing, the type of service features, and the activity at the location.

(g) The citation in wills, trusts, affidavits and other legal documents that a particular location is the individual’s place of domicile.

The auditor is instructed not to consider the following: the place of interment; the location where the taxpayer’s will is probated; passive interest in partnerships or small corporations; the location of bank accounts; contributions made to political candidates or causes; and the location where the taxpayer’s individual tax returns are prepared and filed. Additionally, two specific “non-factors” that are not to be part of the determination of domicile are charitable contributions and religious organization membership. Nevertheless, since the auditor is human (hopefully), it is typically worthwhile to structure as many of these “non-factors” in a manner so as to leave the auditor with the impression that the taxpayer’s life is now focused in Florida, rather than in New York.

Establishing Domicile in Florida

Individuals who wish to become domiciled in Florida should file a Declaration of Domicile with the Clerk of the Court in the county in which the individual resides. Other steps to establish domicile in Florida include registering to vote in Florida, registering all motor vehicles (including automobiles, boats, airplanes) in Florida and obtaining unrestricted Florida driver’s/ boating licenses.

This article is intended as an overview of the challenges of changing domicile from New York to Florida. The determination of domicile is specific to each taxpayer’s facts and circumstances; thus, individual guidance is necessary to successfully change domicile from New York to Florida.

Hollis F. Russell, Gail W. Marcus, Stuart M. Gottlieb and David A. Kellman are partners at McLaughlin & Stern. Mr. Russell is resident in the New York and Florida offices, Mr. Gottlieb is resident in the Florida office and Mr. Kellman and Ms. Marcus are residents of the New York office. Jacob Neumark, a summer intern at the firm, contributed to the preparation of this article.