Why relocate to Florida?
Florida has always been a popular state for people to relocate to due to its mild weather, lack of state or local income taxes, lack of estate taxes, extensive asset and creditor protections (Florida homestead, head of household wages, IRAs, pension plans (for example, 401ks), annuities, life insurance cash values, tenants by the entireties asset joint ownership by spouses, etc...), limits on property taxation (generous annual exemptions and limits on annual increases in the taxation of homestead real estate to the lesser of 3% and changes in the consumer price index), vibrant economy and its extensive beaches and attractions. The pandemic, repeal of the state and local tax deduction and work from home employment opportunities have only increased the net migration to Florida.
Constitutional Protections Against Imposition of Individual Income Tax
The Florida constitution specifically prohibits any state income tax upon natural persons that are residents of the State of Florida. Florida Constitution Article VII, Section 5. Prior to 1971, the Florida Consitution also prohbited imposition of income tax on entities (for example, corporations); after 1971, "C" corporations (but not "S" corporations) became subject to Florida corporate income tax. Florida has no gift, inheritance or estate tax and the Florida constituion similarly prohibits imposition of these taxes. Florida is one of only nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming) that do not impose a general income tax (Washington presently taxes certain capital gains and New Hampshire taxes certain interest and dividend amounts (although that tax is being phased out)).
Residency Factors to Consider
For individuals seeking to change their domicile to Florida, in addition to physically relocating to Florida, new residents must ensure that they (a) are not statutory residents in the state they were formerly resident in and (b) cease to be treated as domiciled in such state, if they wish to take advantage of the more favorable Florida tax and creditor protection provisions. Statutory residents of a state must generally report all income from any source and pay income tax thereon, regardless of where the income is generated or the nature of the income. In many cases, an individual can cease to be treated as a statutory resident in the state they are relocating from by spending fewer than 183 days (a common threshold) in such state (or 184 in the case of New York) or in some cases also not maintaining a residence or place of abode in such state. You should check the residency and statutory residency rules in the state you are leaving. To be treated as domiciled in Florida and not another state, a person must intend for Florida to be the place of their primary, fixed and permanent home. A domicile once established continues until a new one is clearly established. Hence, if someone is domiciled in New York, they must affirmatively attain a new domicile in Florida and clearly surrender their New York domicile. Unlike the bright line tests generally applicable for statutory resident purposes, where one maintains a domicile is generally determined based on all of the facts and circumstances. Florida Statute Section 196.012(17) provides: "Permanent residence means that place where a person has his or her true, fixed, and permanent home and principal establishment to which, whenever absent, he or she has the intention of returning. A person may have only one permanent residence at a time; and, once a permanent residence is established in a foreign state or country, it is presumed to continue until the person shows that a change has occurred." Domicile and residency are often used interchangeably but in many instances for tax purposes, domicile is the critical inquiry not residency. A relatively recent Florida case explaining the differences is Maldonado v. Allstate Ins. Co., 789 So. 2d 464 (FL 2nd DCA 2001). Given that the test is fact intensive, an individual looking to establish that they have relocated their domicile to Florida can take a number of helpful steps, including:
- File a Declaration of Domicile in the Florida county where domicile is established and if applicable, file a similar declaration in the state where you are terminating your domicile.
- Register to vote in Florida
- Obtain a Florida driver's license
- Register all vehicles in Florida
- Purchase or lease a Florida residence. In the case of a lease of property, ideally it would be for a 12 month term to establish a semblance of permanence.
- Use Florida mailing address (not P.O. Box) on all mailings
- File for Homestead property tax exemption on the primary Florida residence which is owned and surrender any for non-Florida properties.
- Change primary doctors, dentists and veterinarians (for pets) to Florida
- Change estate planning, tax and other professionals to Florida
- Update estate planning documents to Florida
- Spend more time in Florida than in the former domcile state. Ideally spend at least 183 days or more in Florida and take steps to prove this.
- Notify any governmental agencies of the new address in Florida
- Update insurance policies consistent with a Florida domicile.
There are plenty of other factors (many of which can be identified via common sense), but this list should give most people a good start.
Importance of Change of Residency Prior to Accrual of Income or Gains
In many cases, it is also important to change your domicile to Florida prior to the accrual of any income or gain from investments and assets. See In the Matter of Garg, DTA No. 829955 (N.Y. Div. Tax App. May 4, 2023) (even if the taxpayer had changed domicile to Florida, the gain would still be taxable in NY because it accrued prior to relocating) . Certain states, such as New York, have special rules that will subject income earned or accrued while a resident to taxation even if the taxpayer relocates to a new state prior to payment. For a more complete discussion of these rules, see Special Accrual Rule
Residency Day Count Tracking
As should be apparent from this discussion, day count tracking is a critical factor in establishing that you are not a statutory resident of any state (other than Florida) and are domiciled in Florida. A recent Kansas Supreme Court decision presents a good example of the type of inquiry that can be undertaken when an individual's domicile is at issue. In that case, the Kanasa Supreme Court concluded that a entrepreneur had changed his domicile from Kansas to Florida. In so concluding, the court reviewed many of the factors set forth above, including a review of the number of days the individual had spent in Kansas versus Florida. For more information on the Domicile365 App and its day count tracking features, please see our software page and download the Domicile365 Residency Day Count Tracking App or click on the button links below.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors regarding these matters.