As we make our way through another winter in the U.S., the question of how to leave the cold behind for a more temperate climate is a popular question. But, it’s not just the weather that prompts people to move to a different state; some also move for reasons like a new job, to be closer to family or friends, or to lower their cost of living. If you add in a friendlier tax environment — meaning no, or reduced, income tax and/or state estate tax — the pull to move to that new state may be even stronger.

If you are moving from a higher-tax state to a lower-tax state, the state from which you are departing may not be eager to let you go. Because availing yourself of your new state’s tax benefits can be complicated, you should work closely with your attorney or tax advisor to be certain that you have effectively changed your domicile to your new state.

1. Domicile vs. residency

When seeking to change your tax home, it is necessary to distinguish between “domicile” and “residence” because it is your domicile — rather than your residence — that generally determines your tax home. As a person’s domicile and residence are usually the same place, the terms are frequently used interchangeably, but there are differences that must be considered. “Residence” means simply living in a particular locality, but “domicile” means living in that locality with the intent to make it your fixed and permanent home. A person may have more than one residence but can only have one domicile at a time.

It is important to note that even if you change your domicile to a new state, you may still have to file a nonresident tax return in another state. This is because some states require individuals to file a nonresident return under a variety of circumstances — e.g., if they spend a certain number of days in that state, if their employer is located in that state, or if they have real estate or other assets in that state. Each state’s laws are different so it is important to familiarize yourself with the rules specific to any state where you may have a tax connection.   

2. Factors that may determine domicile

Although domicile is said to be a matter of the mind or a matter of intention, certain facts and circumstances are often examined when determining which state is a person’s domicile. Below is a list of some of the considerations that may help determine which state is your domicile:

• Why and when did you acquire your home in your new state?
• How much time do you spend there?
• Did you retain a home in your previous state?
• What are the comparative sizes and values of each home and the furnishings therein?
• Where do you work? Where is your business or job actually located?
• Do you belong to any professional or trade organizations in your new state?
• Where does your family visit you?
• Where are your friends and other social contacts located?
• Where are you registered to vote?
• Where are your automobiles registered?
• Which state issued your driver’s license?
• Where are your banking transactions conducted?
• Where do you file your tax returns?
• Where are your advisors and health care professionals?
• Where are the social and/or religious organizations to which you belong located?
• Do you qualify for a homestead exemption in any state?
• What addresses were listed on any government forms?
• Where is your mail sent?

3. Changing domicile to your new state

The burden of establishing domicile is generally upon the party who asserts it. You might find yourself in the position of asserting domicile if your prior state wishes to tax you. In order to support a change of domicile to your new state, you may consider taking the following steps (among others):

• File a Declaration of Domicile, if available in your new state
• File as a nonresident for other state income tax returns
• Move some bank accounts and safe deposit boxes to your new state
• Notify post office, banks, advisors and insurance companies of your new primary residence
• Use your new address in legal documents and applications
• Register your automobile in your new state and obtain a resident driver’s license
• Claim the homestead exemption under your new state’s property tax statutes, if available
• Become socially active in your new state
• Change your status in membership clubs in any other state from resident to nonresident and pay dues accordingly
• Move your tangible property to your new home

There are many reasons you may want to move to a different state. If one of those reasons is to take advantage of friendly state tax laws, careful documentation can be a key ingredient to success. For more information on establishing domicile, visit our Choosing Your State of Residency resource page.

Theresa Marx is a senior wealth strategist for CIBC Private Wealth Management in Chicago, with over 20 years of industry experience. In this role, she is responsible for developing integrated wealth management solutions and providing comprehensive estate and financial planning services to high-net-worth clients.