“Home is where the heart is.” Or at least that’s what they say. When it comes to state income taxes and other legal matters (from family law to asset protection), though, home is where your domicile is… whether your heart – or your body – is there or not.
Fortunately, for many or even most people, determining domicile is rather straightforward – it’s the state in which you live in your one and only residence. But technically, domicile is a person’s fixed, permanent, and principal home that they reside in, and that they intend to return to and/or remain in. Which means for those who have multiple residences, or may be living somewhere else temporarily, where they live may not actually be their domicile.
In fact, it can be remarkably difficult to determine domicile for those who have multiple residences in multiple states, because the key factor is the “intent” of the individual, which isn’t always able to be known clearly. Accordingly, individuals who wish to change to a new state of domicile and don’t clearly leave and sever ties with a prior state of domicile can run into problems, with the old state challenging the change of domicile based upon a perceived lack of intent. Thus, even though a person can technically only have only one true domicile, two states may each believe that single domicile is their state!
In addition, even if an individual does not have domicile in a particular state, maintaining a residence in a state and using it for extended periods of time can trigger “residency” status in that non-domicile state as well, under the “statutory resident” rules. Which, ironically, means that multiple states may claim an individual as a resident under statutory resident rules.
And ultimately, knowing which states an individual is a resident of – whether triggered by domicile status or as a statutory resident – is crucial, because any state in which the individual is a resident has the right to tax that individual on all income worldwide. Which means if residency is triggered in multiple states at once, worldwide income may be subject to income tax in any/all of those multiple states (though certain offsetting credits for taxes paid to another jurisdiction are generally available).
As a result of these rules, determining domicile and the state (or states) of residency for tax and other legal purposes requires not just careful consideration of which state(s) the individual wants to reside in, but the exact rules that each state uses to determine domicile (and/or statutory residency), and that in the end changing state of domicile isn’t just about meeting an arbitrary time-based test but actually showing and being able to prove the intent to live in a particular new state (for which individual behaviors, from voting to driver’s license registration, using local service providers and even moving your pet, are crucially important), along with showing intent to sever ties and not live in the prior state as well!