Texas Residency

Best practices in relocating to Texas from another State.

Texas Residency Tax

Why relocate to Texas?

Texas 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 (Texas homestead, wages, IRAs, pension plans (for example, 401ks), annuities, life insurance cash values, etc...), limits on property taxation, 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 Texas.

Constitutional Protections Against Imposition of Individual Income Tax

The Texas constitution specifically prohibits any state income tax upon natural persons that are residents of the State of Texas. Texas has no gift, inheritance or estate tax and the Texas constituion similarly prohibits imposition of these taxes.

Residency Factors to Consider

For individuals seeking to change their domicile to Texas, in addition to physically relocating to Texas, 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 Texas 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 in such state (or 184 in the case of New York) or in some cases not maintaining a residence or place of abode in such state. To be treated as domiciled in Texas and not another state, a person must intend for Texas 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 Texas 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. Texas Election Code Section 1.015 provides: "[R]esidence ]means domicile, that is, one’s home and fixed place of habitation to which one intends to return after any temporary absence. ... A person does not lose the person’s residence by leaving the person’s home to go to another place for temporary purposes only." Domicile and residency are often used interchangeably but in many instances for tax purposes, domicile is the critical inquiry not residency. Given that the test is fact intensive, an individual looking to establish that they have relocated their domicile to Texas can take a number of helpful steps, including:

  • Register to vote in Texas
  • Obtain a Texas driver's license
  • Register all vehicles in Texas
  • Purchase or lease a Texas 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 Texas mailing address (not P.O. Box) on all mailings
  • File for Homestead property tax exemption on the primary Texas residence which is owned and surrender any for non-Texas properties.
  • Change primary doctors, dentists and veterinarians (for pets) to Texas
  • Change estate planning, tax and other professionals to Texas
  • Update estate planning documents to Texas
  • Spend more time in Texas than in the former domcile state. Ideally spend at least 183 days or more in Texas and take steps to prove this.
  • Notify any governmental agencies of the new address in Texas
  • Update insurance policies consistent with a Texas 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 Texas 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 Texas) and are domiciled in Texas. 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.