Regular readers of this column know that I like to educate on the importance of distancing oneself from your former state of domicile when declaring Florida residency. A recent State of New York State Tax Appeals ruling in the Matter of Thomas Campaniello highlights the reasons necessary to remove any doubt as to your state of residency for both income and estate tax purposes.
Campaniello had declared Florida residence, maintaining a home in Key Biscayne since 1981. He spent more time in Florida during 2007 than in New York, and had substantial business ties to Florida. He obtained a Florida drivers license and maintained personal items in Florida, including a doctoral diploma, guitar and his Ferrari.
In Campaniello, the New York State Division of Taxation had a substantial financial reason to argue that he had not established Florida as his new state of domicile or given up his ties to the State of New York. In 2007, Campaniello filed a New York state income tax return as a non-resident, which New York’s Division of Taxation audited, assessing state income taxes of $319,000, New York City taxes of $169,772 plus penalties and interest totaling $709,429.
In response to the audit, Campaniello submitted a summary of his trips from December 2006 to January 2008, copy of passport pages evidencing foreign travel during that time period, credit card statements, quarterly bank statements (indicating a New York address), and cellular phone statements, among other things.
The auditor’s review of the evidence determined that Campaniello (i) was present in New York for 169 days during 2007; (ii) had significant weekly travel between New York and Florida; (iii) always returned to his domicile in New York City for a portion of nearly every week in 2007 and (iv) continued utilizing New York medical professionals. As a result, an Administrative Law Judge sided with the New York Division of Taxation. Campaniello appealed.
The Tax Court agreed with the lower court, reaching its determination on litany of factors: (i) continuing ownership and frequent use of his New York apartment that he had owned since 1979; (ii) his presence in New York for 171 days (note this is less than half a year); (iii) maintained personal belongings and clothing in his New York apartment; (iv) continued receipt of mail and bills (cellular phone service and credit cards) at his New York address; (v) his spouse maintained New York residency; (vi) family ties; (vii) substantial business ties to New York; and (viii) operation of his New York and Florida businesses from a New York office.
It should come as no surprise that New York state pursued Mr. Campaniello for this tax revenue. States have been chasing both “former residents” and corporations for years to cover budget shortfalls. As states raise their income and corporate tax rates, individuals and entities leave states for others, like Florida, that do not impose such taxes.
While the warning is important, that doesn’t mean that one should give up and succumb to state taxing authorities. When making the decision whether to become a Florida resident, several factors should be considered, including:
- Do you intend to spend the requisite amount of time outside of your former state to qualify for non-resident status?
- Do you continue to earn income in the state?
- Is your health insurance or other benefits that you may receive non-transferrable to Florida if you should become a resident here?
- Are you willing to do the things necessary to sever the ties to your former home state in order to escape that state’s taxing authority?
And there may be other questions pertinent to your situation. If you must remain a state resident to retain certain government benefits such as health insurance or Medicaid, and if it would be unlikely to match those benefits in Florida, then it may not be a good idea to change domicile.
One comment, that is not pertinent, and which I hear often is this: “I have lived in that state my whole life and I cannot imagine not being a resident of that state!”
To this I raise my eyebrows with a perplexed look. Just because you are no longer a legal resident of a state does not mean that you cannot travel within its borders, enjoy the company of family and friends who live there or otherwise feel a close association. It just means that you no longer wish to make contributions to its taxing authority on an annual basis.
So the real difficulty for those who maintain residences here and in their former home state, becoming a Florida resident is not meeting Florida residency requirements so much as it entails escaping the clutches of your former state’s taxing authority.