Taking Full Advantage of the Lack of State Income Tax in Florida

Thursday, March 17, 2011 at 09:29AM

As I'm sure you've read on this site before:  Florida has no state income tax.  The State Constitution prohibits it.  That's a big reason many snowbirds relocate to Florida.

However, becoming a Florida resident may not completely relieve you from payment of state income tax.  The state you left may not be as accommodating to your desire to live a tax-free life.  It may still subject you to income tax there if you continue to have certain connections to that state.

For example, New York is a poor loser when it comes to your taxes.  If you move to Florida and become a resident but still earn income generated from property situated in New York or from a business located in New York, you will still be subject to New York state income tax as a non-resident for that income.

If you remember from The Official Snowbird's Guide To Becoming A Florida Resident, Florida residency from Florida's point of view is determined by your intention.  If you come to Florida with the intention of making it your primary residence, then you are a Florida resident and entitled to the benefits that go along with it.  Of course you must provide clear evidence of that intention, such as obtaining a Florida driver's license, registering to vote in Florida, etc.

However, the state you departed may not look at it that way.  It usually has different criteria to determine whether or not you are no longer subject to its taxes.  This is often confusing to new Florida residents.  Even though you are considered a Florida resident by the State of Florida and entitled to the homestead exemption and other benefits, your prior state may also consider you a resident for the purpose of taxation.  New York will consider you a "statutory resident" for income tax purposes if you spend more than 183 days in New York and have a residence (even secondary residence) there.

A few of the tax-happy states of the Northeast have created the North Eastern States Tax Officials Association Cooperative Agreement on Determination of Domicile.  The name of the agreement alone makes you want to get out and move to Florida.  Under this agreement, the participating states will apply the same criteria to determine what your domicile is for tax purposes.  The factors they use are:

  1. How you use your Northeastern home as compared to your Florida home.  Which one appears to be your primary residence?
  2. Are you involved in a business (employment, participation in management, compensation, and ownership) in the Northeastern state?
  3. In which state do you spend most of your time?
  4. Where do you keep your valuables - items that you hold "near and dear" to your heart?
  5. Family connections.

If the state auditor cannot determine your residency for tax purposes from the criteria above, he or she will look to other factors such as: What address do your bank statements and bills get sent to? Where are your vehicles and boats registered?  Where do you have safe deposit boxes? Where are you registered to vote?  What does your will or other legal documents say is your residence?  Some states will even analyze your phone services to see which looks more like your primary residence.

OK former New York residents, what have we learned?   If you want to escape state income tax in New York,  1) Don't spend more than 183 days in New York in a calendar year, 2) move all of your assets and connections to Florida, if possible, and 3) sever all ties to businesses and property in New York that will generate New York income.