Moving To A Tax Free State?

[cb7010]

My questions are mostly relative to a retiree living off only investment income. Wouldn't it be a great benefit to establish residency in a State that has no state income tax? From doing a limited amount of reading online, it seems relatively simple to establish a tax home somewhere preferential, even if you spend a large portion of the year traveling, RVing, or vacationing elsewhere.

Anyone have any experience or advice they would like to share. I am curious.

Thanks,

Chris.

 

[Rich_by_the_Bay]

I live in such a state and pay no income tax. But property taxes are high, public education is variable (our kids are long gone on to lives of their own) and other issues have to be considered.

While I think it is a big money saver you have to look at the big picture. Choose where you want to live based on quality of life for your values. Taxes, while important, should not dominate the decision, IMHO.

 

[W2R]

I don't like travel much, and I agree with Rich that you have to look at the overall picture. Even if you only look at the financial incentives, overall cost of living covers a lot more than just state income tax.

But if I was a full time RV'er (fat chance), you betcha! Official residency in a tax free state would help.

 

[dex]

You have to look at total spending.

Living in a northern state with high energy costs might offset any tax savings due to low taxes.

 

[Mulligan]

My questions are mostly relative to a retiree living off only investment income. Wouldn't it be a great benefit to establish residency in a State that has no state income tax? From doing a limited amount of reading online, it seems relatively simple to establish a tax home somewhere preferential, even if you spend a large portion of the year traveling, RVing, or vacationing elsewhere.

Anyone have any experience or advice they would like to share. I am curious.

Thanks,

Chris.

Ive studied it as I would like to eventually move to Nevada (to sports bet more often and ski, not just for the lack of state income taxes), but it will be a hard game to win. Hidden fees, housing costs,your health insurance, auto insurance, etc. would have to be examined in addition to the above comments. Some people have played the game of living on Washington border (no state income tax, and driving across the state line to Oregon to buy things (no sales tax, trying to get the best of both worlds). Another option is living on Illinois border of MO. Your investment income (401k,IRA's, and Soc. sec and pensions) is state tax free. Drive across the river and get your groceries, and gas in MO where the sales and gas tax are a lot cheaper.

 

[haha]

Ive studied it as I would like to eventually move to Nevada (to sports bet more often and ski, not just for the lack of state income taxes), but it will be a hard game to win. Hidden fees, housing costs,your health insurance, auto insurance, etc. would have to be examined in addition to the above comments. Some people have played the game of living on Washington border (no state income tax, and driving across the state line to Oregon to buy things (no sales tax, trying to get the best of both worlds). Another option is living on Illinois border of MO. Your investment income (401k,IRA's, and Soc. sec and pensions) is state tax free. Drive across the river and get your groceries, and gas in MO where the sales and gas tax are a lot cheaper.

The Washington sales tax is pushing 10%, but for many retirees it would not be a very big deal. My biggest budget items are not taxed- groceries, health insurance and copays, federal income tax, rent. I buy very little at retail. I mostly notice sales tax in restaurants and bars, where the sales tax and tip add almost 30% to a tab.

But big deal- if you need the money, you just pass on the experience.

BTW Muilligan, which sports do you enjoy betting? Do you have a fairly reliable edge?

Ha

 

[Alan]

We moved to a State with no income tax the moment we retired, but we did so because this is where our kids are rather than to save taxes. We also don't own property so that helps as well, tax wise.

 

[Nords]

Five or six years ago when it was owned by Bloomberg, "Wealth Management" magazine used to publish an annual ranking of tax-friendly states. It broke the categories down by workers & retirees and looked at all the taxes-- state, local, property, and sales.

Hawaii was regularly in the top 15 and made it to the top one year. But our governor recently reassured us that's not going to happen again anytime soon.

These sites have also been mentioned on earlier threads:
http://www.forbes.com/2009/05/22/state-local-tax-burden-personal-finance-map.html
http://www.retirementliving.com/RLtaxes.html

 

[Mulligan]

The Washington sales tax is pushing 10%, but for many retirees it would not be a very big deal. My biggest budget items are not taxed- groceries, health insurance and copays, federal income tax, rent. I buy very little at retail. I mostly notice sales tax in restaurants and bars, where the sales tax and tip add almost 30% to a tab.

But big deal- if you need the money, you just pass on the experience.

BTW Muilligan, which sports do you enjoy betting? Do you have a fairly reliable edge?

Ha

Ha, I would be lying if I was under any illusion I could make any significant money on it. My buddy and I go out there 6 times a year. We are "adrenaline junkies". Nothing like drinking beer in the sportsbook, with your butt puckered up because you have a $500 bet on a football, hockey, or baseball game (sometimes several at same time), knowing if you lose you will be madder than hell! Strange form of "entertainment" huh? Although I won $1500 on hockey last month out there. If Vegas is patient they will get it back with interest I'm sure!

 

[kramer]

Being domiciled in a no-tax state has been a good decision for me (I am a Perpetual Traveler). It has been especially useful during the 2008-2012 income tax vacation on qualified dividends and capital gains. I max those out to the top of the 15% bracket each year and there is no federal tax but there would be quite a bit of state tax in many places.

Actually, the main reasons I changed my domicile from California were their draconian residency rules if you work abroad (something I was considering at the time but no longer) and the fact that they tax HSAs each year which really upset me in principle.

I get a huge warm fuzzy feeling every year after I do my federal taxes and realize that I am DONE. No complicated set of state tax forms to fill out. No second set of estimated taxes to pay during the year, etc. I don't have to count the days I am back in my no-tax state, etc. The reduced compliance stress has been great.

 

[sailor]

In laws are full time RVers and are domiciled in South Dakota.
They only go there once every few years to renew their driver licenses.
They don't have any property there and use a service to handle their mail ( My Home Address, Inc. )

 

[teejayevans]

In laws are full time RVers and are domiciled in South Dakota.
They only go there once every few years to renew their driver licenses.
They don't have any property there and use a service to handle their mail ( My Home Address, Inc. )

Full time cruisers (those who live on their boats) prefer Florida for obvious reasons: Mail Forwarding Services at St Brendan's Isle
TJ

 

[Martha]

For perpetual travelers who pick a no tax state for your domicile, if you are moving from a state with income taxes that state may not recognize your change of domicile unless you physically move there. There is a Minnesota case where some RV'ers tried to establish a South Dakota domicile. The sold their home and did not return to Minnesota. But they also did not live in South Dakota, only spending brief periods of time there to get a drivers license, set up mail forwarding, and the like. Minnesota said not good enough, you are still Minnesota residents. To "establish or change one's domicile requires one's bodily presence in a place coupled with an intent to make such place one's home." Minnesota: Do You Know Where You Live? | AccountingWEB.com

 

[rescueme]

My questions are mostly relative to a retiree living off only investment income.

I live in a state (PA) that has an income tax for non-retirees (e.g. wor*ers) but does not tax retirement income (e.g. pensions, SPIA's, 401(k), IRA's, SS) if you are retired and over the age of 59.5.

They collected their "pound of flesh" on the front end, when I was wor*ing/accumulating (e.g. my IRA/401(k)'s) were taxed on the contribution side).

However, any earnings over the many years of accumulating and gains even in retirement (for us, over 30 years) are not taxable, on the state side....

 

[RonBoyd]

For perpetual travelers who pick a no tax state for your domicile, if you are moving from a state with income taxes that state may not recognize your change of domicile unless you physically move there. There is a Minnesota case where some RV'ers tried to establish a South Dakota domicile. The sold their home and did not return to Minnesota. But they also did not live in South Dakota, only spending brief periods of time there to get a drivers license, set up mail forwarding, and the like. Minnesota said not good enough, you are still Minnesota residents. To "establish or change one's domicile requires one's bodily presence in a place coupled with an intent to make such place one's home." Minnesota: Do You Know Where You Live? | AccountingWEB.com

FWIW, Colorado is another of the States that are aggresively going after those who register their RV in another State to escape paying Taxes. A large number have ended up in Court costing the Offenders 10s of thousands of dollars each. (IIRC, some over $100,000.)

Hardly seems worth the effort.

 

[BTravlin]

Ouch! That had to be painful. Pays to be extra careful where taxes are concerned. And it's only going to get worse with many states fighting huge deficits and poor prospects.

NJ got me a few years ago. I stored wood in a public warehouse and had truckers pick it up there for shipment all over the U.S. In 2008 they contacted me and said I had to file income tax returns for 6 years, pay back taxes, penalties and interest. I filed and paid what was due and then transferred all my stock out of NJ.

 

[teejayevans]

For perpetual travelers who pick a no tax state for your domicile, if you are moving from a state with income taxes that state may not recognize your change of domicile unless you physically move there. There is a Minnesota case where some RV'ers tried to establish a South Dakota domicile. The sold their home and did not return to Minnesota. But they also did not live in South Dakota, only spending brief periods of time there to get a drivers license, set up mail forwarding, and the like. Minnesota said not good enough, you are still Minnesota residents. To "establish or change one's domicile requires one's bodily presence in a place coupled with an intent to make such place one's home." Minnesota: Do You Know Where You Live? | AccountingWEB.com

I think I could fight this. Residency is not required, even those who live outside the US still have to declare a "home" state. If I have a drivers license, registered to vote, register my autos, use address on my 1040, etc of a state, that's my home state, MN can pound sand.
TJ

 

[audreyh1]

FWIW, Colorado is another of the States that are aggresively going after those who register their RV in another State to escape paying Taxes. A large number have ended up in Court costing the Offenders 10s of thousands of dollars each. (IIRC, some over $100,000.)

Hardly seems worth the effort.

That's a different situation. This is someone who is in fact a resident of CO, but for some reason figured they could get away with registering their RV in another State. I bet their cars were still registered in CO or they have a CO driver's license, etc.

If you no longer own property (or rent it) and have no vehicles registered in a given state, have changed drivers license, voter's registration, insurance, etc., and aren't physically present, I think the state would have real trouble claiming you are still a resident. It doesn't matter whether you travel all the time in an RV or not - YOU get to pick where you call home as long as you do all the above.

TX has specific hoops you jump through to establish residency. "Intent" is subjective and I think that it would be really hard for a state to argue that an individual did NOT intend to establish domicile in another state. Especially if that person spent a little time there before going on an endless tour.

Audrey

 

[Martha]

I think I could fight this. Residency is not required, even those who live outside the US still have to declare a "home" state. If I have a drivers license, registered to vote, register my autos, use address on my 1040, etc of a state, that's my home state, MN can pound sand.
TJ

They did fight it and they lost.

 

[Rustic23]

Alan,
Not to be picky, ok, to be picky, not owning property does not shield you from property taxes. Like most taxes they are collected by the owner, to the extent rents allow, and passed on. Same as corporate income tax.

 

[Martha]

Th

If you no longer own property (or rent it) and have no vehicles registered in a given state, have changed drivers license, voter's registration, insurance, etc., and aren't physically present, I think the state would have real trouble claiming you are still a resident. It doesn't matter whether you travel all the time in an RV or not - YOU get to pick where you call home as long as you do all the above.


Audrey

Unfortunately, this is not the case. The case I referred to from Minnesota involved those factors. They sold their home. They never returned to Minnesota. They registered to vote in South Dakota. They got their drivers licenses in South Dakota They still lost. .

Here is a link to the court case: http://caselaw.findlaw.com/mn-supreme-court/1385455.html
From the court's ruling: Suffice it to say that on this record, there is ample support for the tax court's conclusion that the Sanchezes had no physical presence in the State of South Dakota that was sufficient to demonstrate that they intended to make their home there and integrate their lives into the community.   There is no evidence that their visits to South Dakota during 2004 were anything more than brief, temporary stays for the purpose of establishing a mailing address


If I were to leave Minnesota I would be sure to spend a significant amount of time in the state where I was trying to establish my domicile.

I understand that Minnesota isn't the only state taking a hard line on this. You run the same risk in other states that have an income tax.

 

[RonBoyd]

I think I could fight this. Residency is not required, even those who live outside the US still have to declare a "home" state. If I have a drivers license, registered to vote, register my autos, use address on my 1040, etc of a state, that's my home state, MN can pound sand.
TJ

This belongs here:

http://www.early-retirement.org/forums/f27/a-new-way-to-waste-time-54406.html

 

[SunsetSail]

Unfortunately, this is not the case. The case I referred to from Minnesota involved those factors. They sold their home. They never returned to Minnesota. They registered to vote in South Dakota. They got their drivers licenses in South Dakota They still lost. .

Here is a link to the court case: No.
From the court's ruling: Suffice it to say that on this record, there is ample support for the tax court's conclusion that the Sanchezes had no physical presence in the State of South Dakota that was sufficient to demonstrate that they intended to make their home there and integrate their lives into the community.   There is no evidence that their visits to South Dakota during 2004 were anything more than brief, temporary stays for the purpose of establishing a mailing address


If I were to leave Minnesota I would be sure to spend a significant amount of time in the state where I was trying to establish my domicile.

I understand that Minnesota isn't the only state taking a hard line on this. You run the same risk in other states that have an income tax.

I want to clarify that this is a one year issue only. The MN attack on non-MN residency is only if you actually had a physical presence or potentially an economic presence in MN at any point during the year (i.e., 2004 for the case Martha noted). If you moved in 2004, then chances are it will be more difficult to change residency for your 2004 tax year given the ruling. However, in 2005 and thereafter MN couldn't touch you under interstate commerce and probably due process so long as you didn't go to MN.

You can just time your move for December (assuming you are a calendar year filer) and defer income to the next year.

 

[Martha]

I want to clarify that this is a one year issue only. The MN attack on non-MN residency is only if you actually had a physical presence or potentially an economic presence in MN at any point during the year (i.e., 2004 for the case Martha noted). If you moved in 2004, then chances are it will be more difficult to change residency for your 2004 tax year given the ruling. However, in 2005 and thereafter MN couldn't touch you under interstate commerce and probably due process so long as you didn't go to MN.

You can just time your move for December (assuming you are a calendar year filer) and defer income to the next year.

I wonder about this because the long arm statute drags in anyone who is domiciled or residing in Minnesota and arguably you remain domiciled there until you establish a new domicile elsewhere. Page's dissent emphases the problem:

But, after today's decision, taxpayers wishing to establish a change in domicile will have to buy or rent property in another state and remain physically present in that state for some undefined period of time.   The logical absurdity of the court's decision is that because the Sanchezes did not buy or rent property or spend sufficient time in South Dakota, they remain to this day subject, at the Commissioner of Revenue's whim, to Minnesota's income tax even though they have completely abandoned their Minnesota domicile.   Therefore, I would reverse the tax court's order granting the Commissioner's motion for summary judgment.

Do you have any cites on this?

 

[SunsetSail]

I wonder about this because the long arm statute drags in anyone who is domiciled or residing in Minnesota and arguably you remain domiciled there until you establish a new domicile elsewhere. Page's dissent emphases the problem. Do you have any cites on this?

I'll look for cites when I have more time, but even if the long-arm statute pulls you in under due process for domicile purposes the state won't be able to subject your income to tax under the interstate commerce clause.

So MN may have in personam jurisdiction, but MN couldn't subject the income to tax. Complete Auto Transit v. Brady established the tests that would fail, but there is more recent treatment that I can't think of now.