Can I Claim Residence in a State with Lower Taxes?
If you own property or partially reside in a state with lower taxes, it might be tempting to claim residence in that state rather than in Massachusetts (or, “Taxachusetts”, as it is infamously known).
Some light was recently shed on this issue on October 31, 2019, when the Massachusetts Appellate Tax Board ruled in the case Thomas R. Kennedy v. Commissioner of Revenue. In this case, questions of facts and circumstances were used to determine whether a taxpayer is a MA resident.
This case involves a family that claimed the husband was a resident of Florida, whilst the wife and children resided in Massachusetts. Some of the critical turning points the Appellate Tax Board examined in determining the state of domicile (residence) are:
- Are the spouses living separate lives
- Personal and family activities
- Social activities
- Professional and business life
- Location of business ties
- Family relationship/bonding
- Location of primary physician
- State in which you vote
- Number of days in each state
The following are definitions and court cases that we should be mindful of:
- Massachusetts General Laws defines “Resident” as:
· Any natural person domiciled in the Commonwealth, or
· Any natural person who is not domiciled in the Commonwealth but who maintains a permanent place of abode in the Commonwealth and spends in the aggregate more than one hundred eighty-three days of the taxable year in the Commonwealth, including days spent partially in and partially out of the Commonwealth.
- In Dotson v. Commissioner of Revenue “the hallmark of domicile is that it is ‘the place where a person dwells and which is the center of his domestic, social and civil life.’”
- In McMahon v. McMahon domicile is defined as “the place of actual residence with intention to remain permanently or for an indefinite time and without any certain purpose to return to a former place of abode.”
- Massachusetts follows the Common Law rule “that a person with legal capacity is considered to have changed his or her domicile by satisfying two elements: the establishment of physical residence in a different state and the intent to remain at the new residence permanently or indefinitely,” as stated in Dotson case.
Based upon the facts and evidence, the Appellate Tax Board found the taxpayer remained a Massachusetts Resident and failed to prove his domicile was Florida. In very simple terms, it appears that the most relevant turning points were close family ties with his wife and children in MA, primary care physician and medical care was in MA, charitable activities in MA and business activities in MA.
Our office meets with many taxpayers thinking of relocating to warmer states and lower (if any) tax rates. At Terranova & Associates, we stay current on state and federal tax laws to help you make the best financial decisions. We discuss many of the issues referenced above with clients before they implement a change in domicile. Remember, if you are going to change domiciles, you must sever all living, medical and professional relationships in MA.