Sunshine State Move May Reduce Taxes, But Plan Ahead!

​So many of us have already begun to make plans to go south. And Florida is often the choice, presenting us with warm weather, a relaxed lifestyle, and let's not forget golf and beaches! But Florida also offers the opportunity to significantly reduce taxes.

There is no state income tax or state estate tax in Florida, and real estate tax laws favor residents over nonresidents, so for these reasons alone, a move to Florida often provides enough tax savings to easily cover Florida living expenses.

Establishing Domicile
However, it is crucial to properly establish  domicile and understand the difference and relationship between the laws of the two states. Since most of us will often maintain some connection to Massachusetts, problems will most likely come up if both states’ laws are not well thought-out when planning or contemplating a move to Florida.

To take advantage of Florida’s favorable tax laws, one must become an actual Florida resident, not a Massachusetts resident spending time in Florida.
And the standard used to determine establishment of domicile is whether he or she;

1. is physically present in the given state, and,
2. intends to make that state his or her permanent residence.

Physical presence is fulfilled when one purchases a home or rents an apartment in the new state and spends time during the year living in that residence. But intent involves examining factors indicating intent to be a resident of the new state against those showing an intent to remain a resident of the former state.

Domicile analysis can be applied to taxpayers purchasing homes in Florida, while retaining a condominium in Massachusetts, even after spending time throughout the year at both homes, and filing multiple years as Florida residents. Domicile analysis is often used by the Massachusetts Department of Revenue, DOR, as a way to challenge residency by investigating whether there has been failure to establish 'clear and convincing evidence' of an intent to become a Florida resident.

Connections to Massachusetts, including ownership of a condominium, association with the business community, and visits with family members on holidays and special occasions, are often examined.  And while the domicile test does not require a complete severance of one’s ties to his or her former residence, there may be an attempt by DOR auditors to examine whether intent to become Florida residents has been established.

If an individual intends to become a Florida resident, and wants to minimize any potential issues from such a change, there are many steps that can be followed. These steps include, but are not limited to; filing a homestead exemption, changing the primary address for credit cards and bills, changing voter registration, changing title to automobiles, obtaining a Florida driver’s license, executing Florida estate planning documents, opening Florida bank and financial accounts, filing income tax returns as a Florida resident, acquiring Florida burial plots, consulting with a Florida physician, joining Florida social and religious organizations, and changing membership status with non-Florida social and religious organizations to non-resident, becoming active in Florida politics, and opening a Florida safety deposit box.

In addition, file a Florida Declaration of Domicile with the Clerk of the Circuit Court for the county of residence in Florida. This filing, authorized under the Florida Statutes, allows placing in public record a sworn statement that he or she resides in Florida and intends to make Florida his or her permanent residence, and serves as further evidence in support of a genuine change of domicile.

For taxpayers who maintain homes in Massachusetts, the continuing ties to Massachusetts often go well beyond real estate maintenance. As noted, these continuing ties typically include; visits to children and grandchildren living in Massachusetts and social, legal, financial and business relationships with friends and advisors in Massachusetts, as well as receiving specialized medical treatments in Massachusetts. 

Thankfully, the Appellate Tax Board, ATB, has recognized ties continue to exist. The Board has stated, 'continuing ties to Massachusetts do not prevent a finding of change of domicile;  such change does not require that a taxpayer divest himself of all remaining links to the former place of abode, or stay away from that place entirely.'

Applying common sense certainly helps in such situations, and where the taxpayer 'centers' his or her life is often key in determining the taxpayer's intent. In a recent case, the ATB overruled the DOR and held for a taxpayer who had maintained social ties to Massachusetts. The Board noted the taxpayer joined a church in Florida, becoming members and eventually directors of the neighborhood housing association, developed a large number of friends in Florida and attended local Elks and Moose lodges in Florida. ATB countered DOR's argument that taxpayer's social ties to Massachusetts prevented a change in domicile. Due to taxpayers' changes previously noted, as well as changes in drivers' licenses, voter registrations, and similar items, the ATB ruled that the taxpayers had indeed changed their domicile to Florida.

183 Day Rule
Even if domicile is well established, there may be an additional residency hurdle. If a Massachusetts residence continues to be maintained, then Massachusetts may consider legal residence for tax purposes to be Massachusetts, even if the taxpayer is domiciled in another state. If the taxpayer maintains a permanent place of abode in Massachusetts and spends more than 183 days, including partial days, in Massachusetts during the year, then efforts to establish domicile outside of Massachusetts could be worthless, if challenged.

The best way of avoiding the application of these rules is to spend 183 days or less in Massachusetts during each tax year in question and by maintaining detailed records to prove the amount of time spent within or outside of Massachusetts.  In an audit, the Department of Revenue may want copies of credit card statements, phone bills, and bank account statements for the years in question as evidence of location during the tax years. And keeping airline tickets, indicating dates of stay within and outside of Massachusetts, and a journal of dates spent in Massachusetts is a good idea.

If you are unable to limit time in Massachusetts to 183 days, then proving you maintain no 'permanent place of abode' in Massachusetts may be possible, but it can be difficult. Per Massachusetts definition; a permanent place of abode is a dwelling continually maintained by a person, whether or not owned by the person, and includes a dwelling owned or leased by the person's spouse. 

The Department of Revenue maintains a list of exceptions to the definition of a 'permanent place of abode.'  Unless you meet one of the exceptions, it will not be possible for a 'dwelling place' in Massachusetts to avoid treatment as a permanent place of abode.  Having children or grandchildren move into the home or renting out the property for less than a year will not be adequate, if challenged. The only rental exception the DOR has recognized is a full rental to a non-related individual, for at least one year, where the taxpayer has no right to occupy any portion of the premises during the lease period.

​Therefore, taxpayers who wish to maintain a home in Massachusetts yet receive tax benefits of having a domicile outside of Massachusetts must prove, if challenged, that they have spent more than 183 days outside of Massachusetts and have established a domicile outside of Massachusetts.

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