YOUR STATE OF RESIDENCY AFFECTS INCOME AND TRANSFER TAXES:
If the move is to be permanent, it is important that a legal domicile be established in the new state. The general understanding is that domicile is the true, fixed, and permanent home and the place to return, even while residing elsewhere. There may be more than one residence but can have only one domicile.
With each state having its own rules relating to residence and domicile, both states may try to impose their income taxes on a client retiree even if they have established domicile in the new state but have not relinquished domicile in the previous state (at least to the state's satisfaction).
The more steps taken to establish domicile in a new state, the more likely there will be minimal issues in claiming that all ties to prior state have ended. Similarly, the more time that elapses after the move and the more steps taken to establish domicile in the new state, the more difficult it will be for the old state to assert that you reside or have domicile there.
State auditors review all of the actions by a taxpayer to determine whether a change in domicile has occurred. The evidence to establish both a change of residence and the required intention to effect a change of domicile must be “clear and convincing”. The following steps, although certainly not all-inclusive or dispositive, tend to establish domicile in a new state:
- Registering to vote.
- Filing a change of address form with the post office, as well as with all financial contacts. Use the new address on any documents such as tax returns, wills, contracts, insurance policies, passports, and trust agreements. Notify banks, insurance companies, retirement plan managers, the Social Security Administration and companies that send monies of your change in residence and instruct that money be sent to the new address. Notify religious, social, political, civic and professional organizations of the change in domicile and establish new affiliations in similar organizations in the new state.
- Maintain medical records and primary care physicians, dentists, therapists, and the like in the new state.
- Obtain a driver's license and register automobiles
- Move any items in a safe deposit box to a local bank.
- Purchase or lease a residence in the new state; sell your old residence or rent it at fair market value to an unrelated party.
- If an income tax return is required, file a resident return in the new state and a nonresident return in the old state. In the year of move, file part-year returns in both states.
- Obtain any necessary professional registrations and licenses in the new state and deactivate resident registrations in the old state.
- Obtain subscriptions to local newspapers and magazines in the new state.
- Open an office in the new state or establish an office in the home and use business stationary with the new state’s address.
- Discontinue to use bank or brokerage accounts in the old state unless absolutely necessary. If continuing to use the present broker, change the account to the new state.
- If purchasing a home in the new location, file for homestead property tax relief if it is available.
- If retaining the home in the old state, remove any homestead exemption applicable to that property.
- Move all items that make a house a home such as mementos, heirlooms, sentimental items, trophies, collections, furniture, etc. to the new state.
With the states endeavoring to collect tax dollars, it is important to take the steps necessary to establish the true legal residency, even more so if you move to a state with no state income tax.