Tags: income | tax | state | move

CNNMoney: The Possible Downside to Moving to a No-Income-Tax State

Wednesday, 19 Jun 2013 08:08 AM

By John Morgan

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Moving to a state with no income tax may seem like a simple way to escape taxes, but it can actually create complications and cost money in back taxes and penalties, according to CNNMoney.

Buying a new home elsewhere is apparently not enough to escape scrutiny by the states that have been spurned — especially if you return to the old state often.

"States will often take the most minute shred of evidence to make an assumption of residence and follow that path in pursuit of collecting state taxes," CPA Jon Blakesberg of Boca Raton, Fla., told CNNMoney.

Editor's Note:
An $87,500 Tax Loophole Discovered by Cherry Hill Accountant

States can be more aggressive in pursuing former residents now because technology enables them to more efficiently analyze data, said Cara Griffiths, editor in chief of state tax publications for Tax Analysts.

Under the law, former residents typically must spend less than 183 days annually in their former states in order to avoid tax exposure there. Tax experts recommend keeping a meticulous travel log, with receipts and credit card records, according to CNNMoney.

New York and California are noted for pursuit of former residents who have moved to no-tax states like Florida and Nevada. Other states with no state income tax include Texas, South Dakota, Washington, Wyoming and Alaska.

CNNMoney recommended that when moving to a no income tax state, new residents should change their driver's licenses, car registrations, voter registrations and mailing address, among other steps, as soon as possible.

It is possible to own a bank account or property in one's old state without running afoul of their tax enforcement division. But former residents should exercise some care in where their most active checking account is located, and in which location they spend more time at church, country clubs and gyms, CNNMoney noted.

"The courts will look at the entirety of the record. It mostly comes down to 'Where is your life?'" said Verenda Smith, deputy director of the Federation of Tax Administrators.

States that have the lowest level of government financial intrusion — e.g., taxes and regulatory obstructions — also tend to have the highest economic growth rates, a new "economic freedom index" shows.

The index takes into account tax levels, government spending, tort laws, permits and licensing, labor rights and healthcare choices, among other factors.

According to data of America’s 51 largest metropolitan regions from the Bureau of Labor Statistics, the top 10 areas in job growth included mostly cities in Sunbelt states, such as Houston, Dallas, Austin, Raleigh and Charlotte, while the bottom 10 featured mostly Rust Belt areas, such as St. Louis, Milwaukee and Buffalo, City Journal reported.

The report, from the George Mason University's Mercatus Center, suggests geographic shifts in job growth are the result not only of policy, but also of "broader governing philosophies."

"The results seem to imply that Americans value freedom and are willing to vote with their feet for it," said Jason Sorens, one of the authors of the Mercatus report.

"People definitely consider tax burden in their choice of a new home. Business regulation can dampen job opportunities, and people tend to move where the jobs are."

Editor's Note: An $87,500 Tax Loophole Discovered by Cherry Hill Accountant

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