Changing Your Residency - It’s Harder Than You Think

Changing Your Residency - It’s Harder Than You Think

Over the past years, many New Jersey residents have left New Jersey in hopes of escaping its income, estate and inheritance taxes. Much to their chagrin, some of these residents have subsequently discovered that, from New Jersey's perspective, they are still New Jersey residents.

For income tax purposes, New Jersey defines a resident taxpayer as an individual:

(1) who is domiciled in this State, unless he maintains no permanent abode in [New Jersey], maintains a permanent place of abode elsewhere, and spends in the aggregate no more than 30 days of the taxable year in [New Jersey]; or

(2) who is not domiciled in [New Jersey] but maintains a permanent place of abode in [New Jersey] and spends in the aggregate more than 183 days of the taxable year in [New Jersey], unless such individual is in the Armed Forces of the United States.

N.J.S.A. 54A:1-2(m). With respect to New Jersey's estate and inheritance taxes, New Jersey courts treat residence as being the equivalent of domicile. See In re Gillmore's Estate, 101 N.J. Super. 77, 87 (App. Div.), cert. den., 52 N.J. 175 (1968). As such, a taxpayer will not avoid New Jersey estate or inheritance tax by merely being out of New Jersey 183 days or more in the year(s) of or preceding the taxpayer's death. In fact, transfers by a New Jersey domiciliary may be subject to New Jersey's estate and inheritance taxes even though the person had no physical presence in the state at the time of death. See Hill v. Martin, 296 U.S. 393 (1935).

Domicile is a matter of intent, requiring physical presence or contact with New Jersey and an intention to remain in New Jersey or return to New Jersey after leaving it. See In re Gillmore's Estate, 101 N.J. Super. at 87. Every person has a domicile, and more importantly, a person is presumed to be domiciled in his or her domiciliary state until a new domicile is acquired. See Lyon v. Glaser, 60 N.J. 259, 277 (1972). Thus, a taxpayer cannot establish a new domicile unless he or she proves intent to abandon his or her original domicile. See Citizens State Bank and Trust Co. v Glaser, 70 N.J. 72, 81 (1976); Lyon, 60 N.J. at 264. Just how difficult proving intent to abandon your domicile can be was demonstrated by the experience of Kjell and Vicki Samuelsson in a recent Tax Court case.

Kjell Samuelsson, a professional hockey player and his wife, Vicki Samuelsson, moved to Florida in October 1998 so he could play hockey for the Tampa Bay Lightning. The taxpayers enrolled their children in a Florida school, and moved all of their furniture from their house in New Jersey to a rental home in Florida and a storage location in Florida. Then, they listed their New Jersey house for sale. The Samuelssons were unable to sell their New Jersey home, however, and after eleven months (Kjell failed to obtain a coaching position with Tampa Bay or another team) they decided to move back to New Jersey. In November 1999, Kjell obtained employment with the Trenton (New Jersey) Titans hockey team as an assistant coach. For 1999, the tax year in which the Samuelssons moved back to New Jersey, the taxpayers filed a New Jersey resident return and claimed part-year residency. The Division, however, asserted that for gross income tax purposes, the taxpayers were New Jersey residents for the entire year.

Ultimately, the New Jersey Tax Court (in Samuelsson v. Director, No. 003615-2004, 2005 N.J. Tax LEXIS 9 (N.J. Tax Ct. May 10, 2005) agreed with the taxpayers and found that they had abandoned their New Jersey domicile during the time Kjell was employed with the Tampa Bay Lighting in Florida. The court considered a number of factors in reaching its conclusion:

However, the court did acknowledge that certain factors suggested that the taxpayers had not abandoned their New Jersey home. For example, the Samuelssons never sold their New Jersey home; they returned to the New Jersey home within one year of moving to Florida; they never purchased a house in Florida; Kjell worked in Florida for less than one year; and Vicki never changed her voter registration or driver's license to Florida.

New Jersey residents who are considering leaving New Jersey or who recently left New Jersey should keep in mind New Jersey's domicile requirements when determining their residency status. While New Jersey residents can abandon their New Jersey domicile, it may be difficult, and thoughtful planning and complete follow-through is required.