The Permanent State Resident

How not to be one for tax purposes
BY: ORLANDO GOTAY

“How does one declare non-residency?” That’s a question I hear often when it comes to state income taxes.  One doesn’t ‘declare’, this has to be  done with deeds. Not being careful may cause one to be considered by a state as a resident, perhaps long after a move to Mexico.  This invariably comes with a tax bill for unpaid state income tax for those years where one was the unknowing resident.

This is complex, each state having different rules, but they all try to claw one back to raise revenue. The higher one is in the financial food chain, the more likely one’s activities may be questioned.

Many states generally define residency as a permanent, indefinite attempt to establish oneself in-state. That makes sense. One would think that the reverse would automatically make one a non-resident, but not so in all cases.  Some states have an additional concept, domicile, different than residency. To confuse things, domicile may go hand in hand with residency, but not always.  Domicile rules vary, but they generally state that one can only have one domicile, only ending when established elsewhere. Simply residing in a new locale sometimes isn’t good enough to establish a new domicile, because the old one may have never ended. If it looks like one’s absence from the state is temporary, transient, or if there are indications of a return, the domicile rules may keep one labeled as a resident all along. That could be very bad news.

Suppose you were a California resident, later moving to Mexico. If you’re Mexican activities are not sufficient to establish ‘domicile’ –according to California’s evaluation (!!) you may be considered to have not ended your California domicile, therefore are still a California resident, and then…tax bill!

States look at contacts with the old state-and elsewhere- “I know it when I see it”. If you are registered to vote, it matters if you are registered to vote for all offices (federal, state and local) or just federal ones (as an overseas voter). What about a driver’s license?  Car registrations? Own a dwelling? Where’s your spouse? How often are you in state? For what purpose? Social activities, club memberships, even library cards and church attendance could be factors. Most do not automatically make you a resident, but rack up enough indications and you sure could look like one.

You can always go back, but make specific, definite, and above all, temporary visits. Grow roots in your new home. Eat tacos!

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies.  His love of things Mexican has led him to devote part of his practice to federal and state tax matters of U.S. expats in Mexico.  He can be reached at tax@orlandogotay.com or Facebook: GotayTaxLawyer.  This is just a most general outline. It is informational only and not meant as legal advice.