The Importance of Establishing a New Domicile For Tax Purposes

While COVID-19 has Americans spending more time than usual in their homes, many are wondering whether “home sweet home” might actually be sweeter elsewhere. Whether for convenience, vocation or quality of life, it is important to understand that moving states may not necessarily change an individual’s state of residence for income tax purposes.

Many states distinguish between “residence” and “domicile” for income tax purposes. An individual may have more than one residence, but he or she may only have one domicile at a time. Residence means living in a particular locality, but domicile means living in that locality with intent to make it a fixed and permanent home. For many states, the existing domicile continues until a new one is established, and the burden of proof rests upon the party who seeks a domicile change.

Under Georgia law, for example, legal residency does not change to another state simply by moving away from Georgia. Georgia regulations define residency as: “[a]ny person who is or has become a resident of this State shall continue to be a resident for income tax purposes even though temporarily absent from the State, until he or she becomes a permanent resident of another State.”

A 2014 decision by the Georgia Tax Tribunal yields a cautionary tale. The ruling held that the taxpayers’ place of domicile remained in Georgia despite moving to the United Kingdom and having no physical presence in the State during the year in question. The reason for the ruling? The taxpayers failed to prove they had no intent to return to Georgia, and as such, their entire worldwide income was subject to Georgia income tax, including the salary earned while working in the United Kingdom.

Georgia is not the only state with sticky residency. Among many others, New York generally considers all persons domiciled in New York to be residents for income tax purposes with few exceptions, and just like Georgia, New York considers the existing domicile to continue until a new domicile is established. New York emphasized the importance of intent in its seminal 1908 Court of Appeals decision, stating that a “mere change of residence, though continued for a long time, does not change the domicile, while a change even for a short time, with a bona fide intention to change the domicile, will do so…”[3] The ruling also confirmed that the burden of proof rests upon the party who alleges the change.

The question of intent is one of fact rather than law. While each state provides a different list of criteria used to determine domicile, the following list of suggested actions can be persuasive factors to establish the intent to change one’s domicile:

  • Purchase or rent a new principal residence in a new country or state
  • Sell the principal residence in the state of current domicile (unless renting)
  • Update driver’s license and car tags
  • Update bank accounts and safe deposit boxes
  • Register to vote in the new place of residence
  • Apply for a permanent visa if moving out of the country

Learn More

To learn more about state income tax requirements and compliance, contact Stephen Bradshaw by calling 770.396.2200.