Establishing In-State Residency

Generally a nonresident is taxed only on income derived from the state.  Conversely a resident is generally taxed on all income.  A resident may obtain a tax credit for income taxes paid to nonresident states.

Domicile and statutory residency together are often used to determine if a taxpayer meets the tests to be taxed as a resident of a state.  Rarely it is possible to be deemed a resident of more than one state, with no offsetting tax credit for income tax paid to the other state which is not a nonresident state.

Statutory residency generally is established by spending 183 or more nights in the state during a calendar year.
This can be established with:

  • airplane tickets showing transportation into and out of the state
  • gasoline and road toll receipts showing the path of transportation into and out of the state
  • electric, water and heating bills indicating an increase of activity during the time the taxpayer is in the state
  • land-line telephone bills indicating an increase of activity during the time the taxpayer is in the state
  • cellphone GPS location tracking service, such as https://monaeo.com/
  • cellphone records as provided by your cellphone carrier, which show the location of the cellular antennae used during the call
  • annual receipts of weekly religious offerings
  • employee access records, such as a pass card used to gain access to the offices


Domicile generally is established by determining where the taxpayer calls “home.” Where the taxpayer returns to when he comes “home.”
This can be established with:

  • location of the primary residence, the more established and more expensive property…

 


 

New York City Rules:

If you, or your spouse if married filing jointly, maintained or had use of an apartment or living quarters in New York City during any part of 20XX (whether or not you personally used those living quarters for any part of the year), you must mark an X in the Yes box on line E(1) and enter the number of days (not necessarily evenings or nights) you were in New York City, even if on personal business, on
line E(2). (Married filing jointly? If both spouses spent days in New York City, enter the higher number of days on line E(2).) Do
not count days traveled through New York City to use a common carrier such as an airplane, train, or bus.

Living quarters include a house, apartment, co-op, or any other dwelling that is suitable for year-round use, that you or your spouse maintain or pay for, or that is maintained for your primary use by another person, family member, or employer. For example, if a company were to lease an apartment for the use of the company’s president or chief executive officer, and the dwelling was principally available to that individual, the individual would be considered as maintaining living quarters in New York even though others might use the apartment on an occasional basis.

Note: If you marked the Yes box on line E(1) and you spent 184 days or more (any part of a day is a day for this purpose) in New
York City, you may be considered a resident for New York City income tax purposes. The determination of residency is based
on the facts and circumstances of your own situation. See the definitions of Resident, Nonresident, and Part-year resident
in these instructions, and the Nonresident Audit Guidelines available on our website. If you meet the definition, complete the
New York City resident taxes and credits lines (47 through 53, 64, and 69 through 70a) on Form IT-201. See the instructions on
pages 22 through 24, and 28 through 30.

Note: If you maintain a permanent place of abode in New York State but are claiming to be a nonresident for tax purposes,
you must be able to provide adequate records to substantiate that you did not spend more than 183 days of the tax year in New York State

Domicile
In general, your domicile is the place you intend to have as your permanent home. Your domicile is, in effect, where your
permanent home is located. It is the place you intend to return to after being away (as on vacation abroad, business assignment,
educational leave, or military assignment).

You can have only one domicile. Your New York domicile does not change until you can demonstrate that you have abandoned your New York domicile and established a new permanent domicile outside New York State.

A change of domicile must be clear and convincing. Easily controlled factors such as where you vote, where your driver’s license and registration are issued, or where your will is located are not primary factors in establishing domicile. To determine whether you have, in fact, changed your domicile, you should compare (1) the size, value, and nature of use of your first residence to the size, value, and nature of use of your newly acquired residence; (2) your employment and/or business connections in both locations; (3) the amount of time spent in both locations; (4) the physical location of items that have significant sentimental value to you in both locations; and (5) your close family ties in both locations. A change of domicile is clear and convincing only when your primary ties are clearly greater in the new location. When weighing your primary ties, keep in mind that some may weigh more heavily than others, depending upon your overall lifestyle. If required by the Tax Department, it is the taxpayer’s responsibility to produce documentation showing the necessary intention to effect a change of domicile.

If you move to a new location but intend to stay there only for a limited amount of time (no matter how long), your domicile
does not change. For example, Mr. Green of ABC Electronics in Newburgh, New York, was temporarily assigned to the Atlanta,
Georgia branch office for two years. After his stay in Atlanta, he returned to his job in New York. His domicile did not change
during his stay in Georgia; it remained New York State.

If your domicile is in New York State and you go to a foreign country because of a business assignment by your employer, or for study, research or any other purpose, your domicile does not change unless you show that you definitely do not intend to return to New York.

Resident
You are a New York State resident for income tax purposes if:
• Your domicile is not New York State but you maintain a permanent place of abode in New York State for more than 11 months of the year and spend 184 days or more (a part of a day is a day for this purpose) in New York State during the taxable year.
Note: If you maintain a permanent place of abode in New York State but are claiming to be a nonresident for tax purposes, you must be able to provide adequate records to substantiate that you did not spend more than 183 days of the tax year in New York State.

https://www.tax.ny.gov/pdf/current_forms/it/it201i.pdf

The 183 Club


 

California Rules:

“Residence” is the place where you have the closest ties.

“Domicile” is the place where you voluntarily establish yourself and your family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed and permanent home and principal establishment. It is the place where, whenever you are absent or away, you intend to return. Get FTB Pub. 1031

The term “domicile” has a special legal definition that is not the same as residence. While many states consider domicile and residence to be the same, California makes a distinction and views them as two separate concepts, even though they may often overlap. For instance, you may be domiciled in California but not be a California resident or you may be domiciled in another state but be a California resident for income tax purposes. Domicile is defined for tax purposes as the place where you voluntarily establish yourself and family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed, permanent home and principal establishment. It is the place where, whenever you are absent, you intend to return. The maintenance of a marital abode in California is a significant factor in establishing domicile in California. Change of Domicile You can have only one domicile at a time. Once you acquire a domicile, you retain that domicile until you acquire another.

A change of domicile requires all of the following:

  • Abandonment of your prior domicile.
  • Physically moving to and residing in the new locality.
  • Intent to remain in the new locality permanently or indefinitely as demonstrated by your actions.

 

The underlying theory of residency is that you are a resident of the place where you have the closest connections.

The following list shows some of the factors you can use to help determine your residency status. Since your residence is usually the place where you have the closest ties, you should compare your ties to California with your ties elsewhere. In using these factors, it is the strength of your ties, not just the number of ties, that determines your residency. This is only a partial list of the factors to consider. No one factor is determinative. Consider all the facts of your particular situation to determine your residency status.

Factors to consider are as follows:

  • Amount of time you spend in California versus amount of time you spend outside California.
  • Location of your spouse/RDP and children.
  • Location of your principal residence.
  • State that issued your driver’s license.
  • State where your vehicles are registered.
  • State where you maintain your professional licenses.
  • State where you are registered to vote.
  • Location of the banks where you maintain accounts. (customer mailing address, not necessarily bank’s location)
  • The origination point of your financial transactions. (trading from home in California?)
  • Location of your medical professionals and other healthcare providers (doctors, dentists etc.),
  • Location of your accountants, and attorneys.  (other than for California, this generally might mean the address where bills are sent, not necessarily the professional’s office location)
  • Location of your social ties, such as your place of worship, professional associations, or social and country clubs of which you are a member.
  • Location of your real property and investments.
  • Permanence of your work assignments in California.

 


 

If you have an out-of-state corporation or LLC but have headquarters or any office or “presence” (telephone number, home office, P.O. Box, etc.) in California, you have to register that LLC or corporation as an out-of-state entity with the State of California – and the filing fees and minimum annual tax are the same as if you set up the entity in California. Given the additional costs of setting up an out-of-state entity, frequently going that route is more expensive that simply using a California entity in the first place.
In short, unless you plan on meeting the test to NOT be a California resident, you usually aren’t going to save any money by setting up an out-of-state entity – and it may well cost you more than setting up a corporation or LLC in California.

Setting Up Out-of-State Entities if You Are Based in California

 


 

MN Residency Legislative Alert: Location of Attorney, CPA, Financial Adviser or Bank Account May No Longer Be Considered in Domicile Determinations