Residency and Multi-State Income Taxation
Taxpayers should attempt to establish their business and other economic activities to effectively minimize the income they apportion and allocate to states with high marginal tax rates. Establishing residency determinations are critical to individual income tax planning. State tax laws vary, so residency in one state may not preclude another state from taxing the same income, if the "nondomiciliary" state finds that some (or all) of the income was earned from property located in, or activities taking place, within its borders. This emphasizes why establishing residency is also critical for planning and reporting business activities.
One of the factors that motivates many individuals and businesses to relocate to Nevada is the hospitable income tax climate which prevails in the state. Nevada imposes no income tax whatsoever on individuals or on business entities. Ashley Quinn, CPAs and Consultants can help you evaluate your potential for Nevada state income tax savings.
The single most important requirement for a taxpayer to take advantage of Nevada 's " tax hospitality" is domiciling one's self in the state. In simple terms, this means the individual must make Nevada his principal place of residence - his primary home. The CPAs at Ashley Quinn are highly experienced with Nevada laws concerning establishing residency for tax hospitality purposes.
Ashley Quinn is a Nevada firm of CPAs and financial professionals that have been quietly and discreetly serving an elite clientele of individuals and businesses with multi-state operations for over 30 years. The firm is particularly experienced in the tax laws and planning aspects of relocation from California to Nevada and has also represented numerous clients before the Franchise Tax Board in defending against challenges establishing residency.
Meeting Residency Requirements
Various factors are considered in determining whether a taxpayer has close ties with a particular state, including:
- Where you are physically established
- Where you have sources of income
- Where you register to vote
- Where you own a house
- Where you claim the homeowner's exemption
- Where your driver's license is issued
- Where your closest business contacts are, i.e., attorneys, accountants, banks, etc.
- Where your closest social contacts are, including religious, community and social affiliations (clubs)
- Where your vehicles are registered
- Where your minor children attend school, and whether you paid resident or non-resident tuition
- Which state has jurisdiction in the administration of your wills and trusts
- Where you obtained a homestead exemption
- Where you maintain a safety deposit box
- Where you filed an affidavit of domicile
- Where you own a cemetery plot
While no factor by itself can positively determine residency, registering to vote or claiming the homeowner's exemption in California, for example, have been found to make the taxpayer a California resident, regardless of the other factors.
Individuals who are "domiciled" in Nevada and become Nevada residents will generally escape state taxation of their income, except for income arising from sources within another state. Even taxpayers who may continue to have a requirement to "source" one or more items of their income to a taxable state may still enjoy a significant reduction in their overall state tax burden.
A corporation organized and established in Nevada could also significantly reduce its state tax burden. States generally tax corporate business income based on the corporation's level of activity within and outside that state. Therefore, shifting at least part of the corporation's business activities to Nevada will generally result in a reduction of state tax. In addition, being organized and domiciled in Nevada will eliminate state taxation of the corporation's non-business income.
Likewise, trusts with Nevada fiduciaries can gain a significant tax advantage. In California, for example, trusts with a California fiduciary are taxed on income retained in the trust, even if all beneficiaries are California non-residents. With a Nevada fiduciary, non California source income distributed to non California beneficiaries or retained and taxable in the trust, will escape California taxation.
Taxpayers who work and/or reside in more than one state should continually monitor business and other economic activities to minimize effectively the amount of income apportioned and allocated to states with high marginal rates. The issue of state tax residency is complicated, but proper planning, documentation and tax compliance records can save tax dollars.