Residency Requirements We are frequently asked about the requirements that must be met to qualify as a resident of a given state (and, therefore as a nonresident under the law of another state) and the consequences of residency in a given state. While the laws differ from state to state, some generalizations can be made. Definition of Residency A resident of a particular state is ordinarily liable to pay income taxes to that state, regardless of the source of the income. A nonresident is required to pay taxes only on income from sources within a particular state. In other words, a resident of a particular state must pay taxes to that state on all taxable income, regardless of source. A nonresident of a particular state is required to pay taxes to that state only on income from sources within that state, such as earnings from a business carried on within that state or income derived from property physically located within that state. A nonresident would ordinarily not be taxable in a particular state on investment income (interest, dividends, etc.) derived from sources outside that state. For this reason, many people who have substantial income from investment or similar sources choose to establish residency in states such as Nevada that do not impose state income taxes. The term "resident" is commonly defined to include any individual domiciled in a particular state or any other individual who maintains a permanent place of abode within the state. A common interpretation is that a resident is one who intends to reside permanently in a particular state, or who intends to return to the state following temporary absences. How Residency is Determined An individual can have only one residence. Residency is largely a matter of intention. The courts give little weight to oral announcements concerning residency. Rather, courts tend to look at a number of objective factors, which are used to determine a person's actual intentions. An individual can be absent from a particular state, even for a long period of time, but maintain a permanent place of abode in the state to which he or she periodically returns. Such an individual would be considered a resident for tax purposes. In determining residency, courts commonly look to see whether an individual has established a permanent place of abode over a significant period of time to create a settled physical condition. The factors used to make this determination include the amount of time spent at a particular location, the nature of the individual's place of abode, and the activities engaged in at the location. Often there is a rebuttable presumption that an individual who maintains a place of abode in particular state and spends more then 183 days in the state in a given year is a resident for that year. Conversely, someone who does not maintain a place of abode, or who spends fewer then 183 days in a particular state, runs the risk of being presumed not to be a resident. A second test is also frequently employed. Under this second test, an individual resides in a state if he intends to live there permanently or for an indefinite period of time, or if he "intends to return" to the state whenever absent from the state. Ordinarily, once an individual establishes residency in a particular state, that status is retained until such time as the individual takes positive action to establish residency in another state, and also relinquishes the rights and privileges of residency in the first state. Thus, under this second test, absence from a state for 183 days or more is not itself sufficient to show abandonment of previous residency. Indeed, there can be a presumption that an individual who resides in a particular state and is therefore a resident for tax purposes if the individual maintains a residence or place of abode in the state, whether owned, rented or occupied, even if the individual is in the state less than 183 days of the tax year, and either (i) claims a homestead or military tax exemption on a home in the state; (ii) is registered to vote in the state; (iii) maintains a driver's license in the state; or (iv) does not reside in an abode in any other state for more days of the tax year than the state in question. There can also be a presumption that an individual does not reside in a particular state if the individual meets all of the following factors: (i) does not claim a homestead or military tax exemption on a home in the state; (ii) is not registered to vote in the state; (iii) does not maintain a driver's license in the state; (iv) is in the state fewer than 183 days of the tax year; and (v) maintains a place of abode outside the state where he or she resides for at least 183 days of the tax year. If the above list of factors results in an inconclusive determination, additional factors can come into play. These are more or less secondary tests, and are often used to determine whether or not the taxpayer has abandoned a residence in a particular state. They include: whether the individual continues to maintain a place of abode in the first state (whether owned, rented or occupied); whether the individual maintains a driver's license in the first state; whether the individual maintains active membership in a church, club or professional organization in the state and participates in the organization as a result of the membership; whether instruments and documents, such as tax forms, correspondence and the like, initiated during the tax period are consistent with residence in the first state; whether immediate family members who continue to reside in the first state rely, in whole or in part, upon the taxpayer for support or are claimed as dependents for tax purposes; whether the individual has vehicles registered in the state; the location of employment or active participation in a business within the state; active checking or savings accounts or use of safe deposit boxes located in the state; whether the individual conducts estate planning using wills, trusts and other documents prepared in the state; whether the individual claims deductions on federal income tax return based upon a home in the state being the primary place of residence. Establishing residency in a particular state can be somewhat complicated. Furthermore, laws vary from state to state, and applying the laws to a particular set of circumstances is not a simple task. We hope this information answers some of your questions and assists you in your individual estate planning. If you are uncertain about your residency and how it will affect your estate planning, we encourage you to obtain competent legal advice concerning the application of the law to your individual circumstances. If you have questions, or if you require additional clarification, please feel free to contact us.