Tax Tip Tuesday: State Residency Warning Signs - When Your Old State Thinks You Never Left

Moving to a new state? There are state residency considerations.

Moving to a new state — especially one with no income tax — can result in significant tax savings. But simply packing your bags and updating your driver's license is not always enough. Many states aggressively audit former residents who they believe never truly left. If your old state determines that you are still a resident for tax purposes, you could owe back taxes, interest, and penalties on income you thought was no longer taxable there.

Understanding the warning signs that states look for — and taking steps to address them — is essential if you want your move to hold up under scrutiny.

How States Determine Residency

Most states use one of two standards to determine whether you are a resident for tax purposes:

•        Domicile — Your permanent home; the place you intend to return to even when temporarily away. You can only have one domicile at a time.

•        Statutory Residency — Many states impose taxes on individuals who maintain a permanent place of abode in the state and spend more than a certain number of days there (often 183 days or more), regardless of where their domicile is.

The burden of proof is generally on you — the taxpayer — to demonstrate that you have abandoned your old state residency and established a new one elsewhere. States like New York, California, and New Jersey are particularly aggressive in challenging high-income taxpayers who claim to have moved.

Warning Sign #1: You Still Own a Home in Your Old State

Retaining a home — whether a primary residence, vacation property, or even a co-op apartment — in your former state is one of the most significant red flags auditors look for. If that home is available for your use, the state may classify it as a "permanent place of abode" and assert statutory residency over you.

What to watch for:

•        Keeping a home in the old state while renting or buying in the new state

•        Allowing family members to continue living in the old state home

•        Delaying the sale of your old home for months or years after your move

Warning Sign #2: You Are Spending Too Many Days in Your Old State

The day-count is one of the most concrete pieces of evidence a state auditor will examine. Many states — including New York — apply a 183-day rule: if you spend more than 183 days in the state during the year and maintain a permanent place of abode there, you may be taxed as a full-year resident.

Example: You move to Florida in January but continue traveling to New York for work, family visits, and medical appointments. By the end of the year, you have spent 195 days in New York. Even if your Florida home is your primary residence, New York may assert full-year residency.

What to watch for:

•        Frequent business trips back to the old state

•        Extended visits to care for family members who remain in the old state

•        Medical appointments or elective procedures scheduled in the old state

•        Not keeping a detailed calendar or travel log to document days spent in each state

Warning Sign #3: Your Financial and Legal Ties Remain in the Old State

Auditors look beyond where you sleep at night. They examine where your financial life is centered. If your bank accounts, investment accounts, attorneys, accountants, and financial advisors are all still located in the old state, that is a strong indicator that your domicile has not truly changed.

What to watch for:

•        Primary bank accounts still registered to your old state address

•        Brokerage or investment accounts still tied to your old address

•        Attorney, CPA, or financial advisor relationships that have not been updated to your new state

•        Wills, trusts, or estate documents that reference the old state as your home

•        Business interests, ownership stakes, or employer relationships still centered in the old state

 

Warning Sign #4: Your Personal and Social Life Is Still Rooted in the Old State

States do not just look at finances — they look at your life. Where do you worship? Where do your children go to school? Where are your doctors? Where do you spend the holidays? These personal connections paint a picture of where your true home is.

What to watch for:

•        Children remaining enrolled in schools in the old state

•        Primary care physicians, dentists, or specialists still in the old state

•        Membership in clubs, religious organizations, or community groups in the old state

•        Spending major holidays with family in the old state on a regular basis

•        Pets registered in the old state

Warning Sign #5: Your Official Documents Still List the Old State

Administrative records are some of the easiest pieces of evidence for auditors to pull. If your driver's license, voter registration, vehicle registration, and passport still show your old state address long after your move, you are creating a paper trail that works against you.

What to watch for:

•        Driver's license not updated to the new state

•        Vehicle not re-registered in the new state

•        Voter registration not updated or transferred

•        Professional licenses or business registrations still tied to the old state

•        Filing a homestead exemption or property tax benefit in the old state after your move

Warning Sign #6: You Have Not Filed a Nonresident Return for Income Earned in Your Old State

Even after you establish residency in a new state, you may still have an obligation to file a nonresident tax return in your old state if you continue to earn income sourced there — such as wages from a job physically performed there, rental income from a property, or business income from operations in that state. Failing to file these nonresident returns can signal to the old state that you believe you are still a resident — and they may tax you as one.

What to watch for:

•        Not filing a nonresident return in the old state for income earned there after your move

•        Continuing to receive W-2s or 1099s with your old state listed as the taxing state

•        Receiving rental income from a property in the old state without reporting it as a nonresident

Steps to Protect Your Residency Change

If you are planning a move — or if you have already moved and are concerned about your residency position — here are the key steps to take:

1.     Establish domicile in the new state quickly and clearly. Get your new driver's license, register to vote, register your vehicle, and update your address with financial institutions as soon as possible after your move.

2.     Keep a detailed day-count log. Track every day you spend in each state throughout the year. Cell phone records, credit card statements, and travel records can all be subpoenaed in an audit — your own contemporaneous diary is your best defense.

3.     Minimize time spent in the old state, particularly in the first one to two years after your move. The first full tax year is when residency disputes most frequently arise.

4.     Transfer your business and financial relationships to the new state. Open new bank

accounts locally, hire a CPA and attorney in the new state, and update estate documents.

5.     File a Declaration of Domicile if available in your new state (Florida, for example, allows this). This creates a formal public record of your intent to establish domicile.

6.     Consider selling or renting out the old state home, or at minimum limiting your personal use of it, to avoid it being characterized as a permanent place of abode.

7.     File nonresident returns in your old state for any income sourced there after your move. This reinforces your position that you are no longer a resident.

High-Risk States to Watch

While any state with an income tax has an interest in retaining resident taxpayers, the following states are known for particularly aggressive residency audits:

•        New York — Has a dedicated residency audit unit and applies the 183-day statutory residency rule strictly. The burden of proof is squarely on the taxpayer.

•        California — Does not follow a simple day-count rule. California focuses heavily on domicile and will scrutinize all ties to the state, including where your "closest contacts" are located. California's Franchise Tax Board (FTB) has a broad reach.

•        New Jersey — Closely watches residents who move to neighboring Pennsylvania or Florida, particularly when business operations or family ties remain in New Jersey.

•        Illinois — Scrutinizes high-net-worth individuals who move out of state while retaining business interests or property in Illinois.

Not Sure If Your Move Will Hold Up?

State residency audits can result in years of back taxes, interest, and penalties — often far exceeding what the taxpayer expected. At MKHS Tax Group, we help clients navigate the complexities of multi-state taxation, document their residency changes properly, and respond to state residency audits when they arise.

If you have recently moved, are planning a move, or have received a notice from your former state's taxing authority, contact us today at info@mkhstaxgroup.com. We are here to help you protect your position.