A person’s tax home plays a significant role in determining state tax obligations. With most states imposing individual income taxes and many also imposing estate taxes, where you are considered a resident can have substantial financial consequences. For individuals with multiple homes, remote work arrangements, or changing employment locations, determining the correct tax home is not always straightforward.
Understanding how states define residency and domicile is critical when planning a move or defending an existing position.
Why Your Tax Home Matters
Most states and the District of Columbia impose individual income taxes, and many also impose estate taxes. Tax rates vary widely from state to state. Some states impose no individual income tax at all, while others have top rates exceeding 10 percent.
As a result, a taxpayer’s tax home can significantly affect overall tax liability. Because many individuals own property or spend time in more than one state, residency determinations are a frequent point of scrutiny for state tax authorities.
Residency, Domicile, and the 183-Day Rule
There is no uniform definition of residency across states. In general, states that impose income or estate taxes determine residency based on domicile, but many also apply statutory residency rules.
One commonly used benchmark is the 183-day rule. If a person spends more than 183 days in a state during the year, that state may treat the individual as a statutory resident for tax purposes. Statutory residency is based primarily on time spent in the state and, in many cases, the maintenance of a permanent place of abode.
Statutory residency is not the same as domicile. Domicile is based on intent and facts and circumstances, while statutory residency is largely a mechanical test. It is possible for a person to be domiciled in one state while simultaneously treated as a statutory resident of another. In those situations, both states may assert taxing authority over the same income, creating complex compliance and planning challenges.
Because of this risk, selecting and defending a domicile requires careful consideration of state-specific rules and documentation.
How States Determine Domicile
Domicile is generally determined by where a person is physically located and where they intend to remain indefinitely. A person can have multiple residences, but only one domicile at a time.
Courts and taxing authorities rely on objective criteria to evaluate domicile. While the specific factors vary by state, many focus on five primary areas: family connections, personal possessions, time spent, homes owned or occupied, and business interests.
Time alone is not always controlling. Formal indicators such as voter registration, driver’s license issuance, primary residence exemptions, and the situs of wills and trusts also play an important role. Ultimately, domicile is established based on a preponderance of the evidence, not any single factor.
Increased Scrutiny and Audit Risk
States frequently challenge claimed changes in residency, particularly when significant tax revenue is at stake. Residency disputes often result in audits, during which taxpayers may be asked to provide extensive documentation. This can include information about medical providers, banking relationships, credit card activity, passport records, and travel history.
Because of this level of scrutiny, residency changes should be approached deliberately and supported with consistent, well-documented actions.
The Importance of Planning Ahead
If you are considering a change in your tax home, careful attention to domicile and residency factors is critical. Your ShindelRock team can review your circumstances and help create a plan that aligns with state expectations.
