As clients reach retirement age, many often consider a change in their domicile as part of their retirement plan. Aside from the warmer winters, Florida is a popular state for change of domicile because it has no income tax and no state inheritance tax. Another important aspect of becoming a Florida resident is the Florida Homestead Exemption provided by the Florida Constitution. In addition to allowing for a reduction in local real estate taxes, the Homestead Exemption also provides that the homestead is exempt from claims of creditors of the Florida resident.
Most times, the tax authorities challenging the change in domicile are from the state the taxpayer is leaving, since they are losing a taxpayer, rather than the new state. For example, New York, Pennsylvania and New Jersey have a 183-day rule which provides that if you are present in the state for 183 days you are deemed to be a resident for income tax purposes. This means that you would have to pay income tax as a resident if you are present in that state for 183 days. Florida, on the other hand, does not have a 183-day rule for purposes of determining whether you are a resident. So it is often the exit state that challenges a change in domicile when the taxpayer files a final resident return.
In the recent Florida case of Ramos v. Motamed, decided by the Circuit Court for Palm Beach County, the taxpayer’s change of domicile was challenged in the destination state of Florida rather than the exit state of California. The case was not initiated by Florida. Rather, it was a creditor seeking to enforce a judgment against the debtor. The creditor argued that the Homestead Exemption should not apply to the debtor because he was not really a Florida resident, and therefore should not protect the taxpayer’s luxury condominium from being used to satisfy the creditor’s judgment.
The taxpayer did all of the usual steps to establish a new domicile, such as obtaining a property in the state, changing his voter registration, obtaining a Florida driver’s license and even obtaining a new local library card.
However at trial, the creditor provided other evidence indicating that the debtor did not actually move to Florida. In particular, he presented gym records showing that the debtor attended his gym in California 300 out of 365 days in 2015. The court determined that based on this evidence, the taxpayer did not actually change his domicile to Florida. He was therefore not entitled to Florida’s Homestead Exemption, and his condominium could be used to satisfy the creditor’s judgement. The property was listed for judicial sale and sold shortly thereafter.
If you are considering a change in your state of domicile, this case shows that while changing your driver’s license, voter registration and other administrative details are relevant factors, the most important thing is that you actually move to the new state.
At least for this one taxpayer, who loved to go to the gym, you could say that his attempt to change domicile was an exercise in futility which did not work out.