New York residents who are planning to move out of state to avoid higher New York state taxes should be prepared to prove that they no longer have a tax nexus to New York in case the state decides to audit their returns.
It is no surprise that the COVID-19 pandemic has further destroyed the finances of New York City and New York State. As people and businesses have made less money in 2020, the government has collected fewer tax dollars, while the costs of running the government and dealing with the pandemic have significantly increased. Governor Cuomo announced tax increases to try to lessen the shortfall, and New York State residents will soon pay more tax. Some New York City residents will pay the highest state and local tax rate in the United States (14.7%, on top of federal income tax), as Governor Cuomo acknowledged in his announcement. COVID-19 has resulted in many taxpayers leaving New York City, and the tax increases will further the trend as more people flee. Florida is one of a few states that offers sunshine and zero state income tax. In addition to the thousands of people moving out of New York, Goldman Sachs, Citadel and Blackstone, among other businesses, are also moving to Florida.
However, New York’s Department of Taxation and Finance does not take such moves lightly. Leaving property behind in New York City because the real estate market has slowed due to COVID-19? That’s a reason for New York City and State to still tax your income, even if you live and work in Florida. Still being paid by a New York employer? If so, you still owe income tax to New York State, even if you live and work from a new home in Florida.
Whether you move for better weather or to pay less in taxes, be prepared for a residency audit. High-tax jurisdictions like New York frequently challenge claims that taxpayers have severed ties and are living and working in low-tax jurisdictions.
New York City and New York State are particularly aggressive in auditing the tax returns of people who claim to have moved to a different state. In an audit, the burden is on the taxpayer to prove that he or she no longer has a tax nexus to the former state. Simply buying property in the new state is not sufficient. There are many factors that are used to establish tax residency. In a 2018 lawsuit, a taxpayer was found to still have a New York residence despite the taxpayer spending more than 183 days at his condo in Florida.
We can help you implement a plan to support your new residency and break from your high tax state. We can also defend you in an audit from the state that is challenging your new residency and seeks to continue to tax you. Please contact us for more information.
Please also see our related article: Cutting Ties to a High-Tax State.