For many retirees, in New England and elsewhere, the siren song of Florida is difficult to resist. Between the warm weather, sandy beaches and favorable tax environment, Florida attracts many retirees as either full-time residents or as “snowbirds.” Establishing tax residency in Florida can provide several tax and estate planning opportunities due to Florida’s lack of state income and estate taxes, substantial homestead protections, and more.
However, becoming a Florida resident (and Florida taxpayer) is not as easy as simply buying a second property in Florida and spending most of your time down there. The Massachusetts Department of Revenue (“DOR”) has actively challenged individuals who claim tax residency in a low-tax state (such as Florida or New Hampshire), especially when such a move coincides with a gain recognition event, such as selling appreciated stock or an interest in a business. The implementation of Massachusetts’ additional 4% income tax on income above a certain threshold (commonly referred to as the “millionaires’ tax”) has only increased the potential financial consequences of residency determinations. If domicile in Massachusetts is not properly broken, the DOR may well challenge your residency, which can lead to a lengthy and costly legal battle with the DOR where you, and not the DOR, bears the burden of proving you have changed your domicile.
This blog is intended to provide guidance on suggested steps one should take to properly break domicile in Massachusetts and establish tax residency in a new state. Even if all suggestions contained in this blog are followed, we make no guarantee of success if a tax position is challenged by the DOR or IRS. This blog does not constitute tax or legal advice. An attorney, CPA or other tax professional should be consulted before relying on any of the information contained in this blog.
Where Do I Live?
While this may seem like a strange question, Massachusetts (along with most states) impose different tests to determine where an individual lives for tax purposes. First, there is the statutory residency test. In Massachusetts, the rule is very straightforward: if you maintain a “permanent place of abode” (house, condo, apartment, etc.) in Massachusetts and spend 184 or more days in the Commonwealth in a given calendar year, you will be treated as a statutory resident of Massachusetts and subject to Massachusetts income taxes.
It is also worth noting that partial days spent in MA count for this purpose. As an example, imagine a couple living in Florida fly into Logan, landing at 11PM. They still own a condo in MA, so they head home for a good night’s sleep before heading back to Logan early the next morning for the next leg of their journey. Have they spent a day in Massachusetts?
They actually spent two days in MA. Subject to limited exceptions, they will generally be treated as having spent two days in Massachusetts, even if their actual time in the state may have only been several hours
Domicile, however, is a subjective test that is typically determined by the totality of the circumstances. In MA, your domicile is “the place in which an individual’s true, fixed, and permanent home” is located. You may only have one domicile at a time – if you are domiciled in MA, you are treated as a domiciled resident of MA until you establish domicile elsewhere. As such, you cannot avoid MA taxes simply by spending 183 days or more outside of Massachusetts if your true home is still here.
I moved! Where am I domiciled now?
As mentioned above, the DOR has historically been quite aggressive in challenging individuals who claim domicile in a low tax state, especially with high-net worth individuals and those who recognize a large gain soon after moving that would’ve otherwise been taxable in Massachusetts. So once you’ve purchased a property in another state and moved, the question becomes: have you taken the necessary steps to establish domicile? Here are some examples of things the DOR has looked at when determining if a MA resident has properly broken domicile:
- Location of family members, particularly spouses, partners and dependent children
- Failure to open bank accounts in your new state, particularly if your most used accounts, like checking accounts, remain at MA banks.
- Failure to obtain new driver’s licenses and update your motor vehicle registration to your new state
- Location of your employer or business interests
- Where you spend important holidays
- The relative value of your properties
- A $2M home in MA and a $300k condo in FL might indicate you still consider MA to be your “true home”
- The percentage of time you spend in each location
- While there’s no hardline rule, a 90%/10% time split between FL and MA will be more persuasive than a 55%/45% split
- Failure to forward your mail to your new address
- Failure to update your voter registration to your new state
- Failure to update billing addresses for your credit/debit cards and bank accounts
- Insufficient social contacts in your new state – for example, a regular attendee of church in MA fails to join a new congregation in FL and instead attends virtual services from their MA church online.
- Maintaining a country club membership(s) in MA, and possibly failure to join a similar club in your new state
- E-ZPass and other electronic tolls showing you were in MA
- Credit card charges in MA when claiming you were in another state
- Failure to move valuable and/or sentimental items to your new state
- A favorite car, boat, art, family heirlooms, etc.
- Location of medical providers and other professionals
- Doctor, dentist, attorney, accountant, etc.
- Cell phone GPS records showing your physical location.
Importantly, even after successfully establishing domicile elsewhere, an individual may remain subject to Massachusetts income tax on certain Massachusetts-sourced income, including rental income from Massachusetts real estate, business activities, and services performed within the Commonwealth.
This is a non-exhaustive list, as the DOR casts a wide net when challenging residency. Ultimately, breaking domicile in Massachusetts requires more than simply purchasing a home in another state or spending a majority of the year outside the Commonwealth. The key is demonstrating that you have genuinely relocated your permanent home, supported by both your intentions and your actions. Because no single factor is determinative, careful planning, consistent documentation, and coordination with your tax and financial advisors are essential. For individuals contemplating a move, particularly those anticipating a significant taxable event, taking these steps well in advance can help minimize the risk of an unexpected Massachusetts tax liability and a costly dispute with the DOR.
