Your tax domicile might not be where you think it is. Tax expert CPA Martin Shenkman shows where changing your address, registering your RV, and registering to vote may not change your home state domicile.
Case Study of Newly Full Time RVer and State Taxation
Martin M. Shenkman, CPA, MBA, JD
The articles in this series have spoken generally about the impact of state tax, residency, domicile, and so forth. Let's take a look at one state to illustrate how the rules can more specifically apply. This is also the approach recommended to you in the articles. Look on line on state tax websites for publications and tax form instructions for non-residents. These will help you understand how each state defines a non-resident; if, when, and how they will tax you. Knowing the real rules you face, not the sales pitches many RV oriented websites contain, will be what keeps you out of tax hot water.
New York Publication 81
Here are two excerpts from a New York tax publication targeted towards non-residents. There are many more important rules explained in the publication, but the following two will illustrate some critical points.
"In general, your domicile is the place you intend to have as your permanent home. Your domicile is, in effect, where your permanent home is located. It is the place you intend to return to after being away (as on vacation abroad, business assignments, educational leave, or military assignment). You can have only one domicile. Your New York domicile does not change until you can demonstrate that you have abandoned your New York domicile and established a new domicile outside New York State."
"A change of domicile must be clear and convincing. Easily controlled factors such as where you vote, where your drivers license and registration are issued, or where your will is located are not primary factors establishing domicile."
Randy and Jane rent their home in NY for a fair rent using a one year form lease and take off in their RV. Randy and Jane register their RV in South Dakota. They register to vote and get a mail drop in South Dakota. They believe they are South Dakota residents for tax purposes. Their two adult children and grandchild still live in New York. Their bank account is in New York. They stored their china and collectibles in Uncle Joe's attic in upstate New York.
Randy and Jane don't have a home, or so they think. New Yorks tax authorities might view this quite differently and argue quite strongly and successfully that Rand and Jane remain domiciled in New York.
Randy and Jane don't have a "home" as most folks would define it anywhere and certainly not in New York, but according to the New York tax definitions, their tax home probably didn't budge out of New York. Their ties to South Dakota are not considered as significant by New York.
Randy and Jane sell their NY home and take off in their RV. Randy and Jane register their RV in South Dakota. They register to vote and get a mail drop in South Dakota. They believe they are South Dakota residents for tax purposes. These factors, according to New York Publication 88, are not significant to determining domicile. Their two adult children and grandchild still live in New York. Their bank account is in New York. The family cemetery plot which has seven empty spaces for them is in a New York cemetery. They stored their china and collectibles in a rented warehouse in New York. Since they're on the road most of the year, they've retained their membership in the local church in NY in which they were married.
Some of the facts are much better than the prior example, including the fact that they no longer own their former home. However, some of the other facts may be argued to demonstrate that their domicile has not moved from New York.
Randy and Jane don't have a home, or so they think. New York's tax authorities might view this quite differently and argue quite strongly and successfully that Randy and Jane remain domiciled in New York.
Randy and Jane sell their NY home and take off in their RV. Randy and Jane register their RV in Texas. They register to vote and get a mail drop in Texas.
Their two adult children and grandchild still live in New York. The family cemetery plot which has seven empty spaces for them is in a New York cemetery. They stored their china and collectibles in a rented warehouse in New Jersey in order to assure that they have no property of any nature still in New York. Even though they are on the road most of the year, they wanted to maintain some contact with their local church in NY in which they were married, but they specifically reduce their status to affiliate members.
Randy and Jane take a long trip to Texas as their first destination when they leave New York. They spend several months there and contract to have a lease arrangement for a permanent RV spot in an RV park in Texas. They join a church in a neighboring town. They planned their visit to Texas to coincide with the local elections and they made a point of voting. Jane went to a new physician in Texas for her annual physical and transferred all her medical records from New York to Texas. Both Randy and Jane began a relationship with a local dentist and had cleanings and exams and requested in writing that their old New York dentist send their records to their new Texas dentist.
Randy has their savings, IRA, and other investment accounts changed from the New York office of a major nationwide brokerage firm to their Texas office. Finally, Randy and Jane hire a local CPA in Texas to complete their current year's income tax returns. Their new CPA files a final return for New York, showing that Randy and Jane were domiciled/residents in New York up until they day that they formally moved their property into the New Jersey warehouse and hit the road.
Many more of the facts are better than the prior examples, including the fact that they no longer own their former home or any property in New York. Importantly, they've actually taken a number of affirmative steps to demonstrate that they have established a new domicile. Remember, leaving your old domicile doesn't solve the tax issue. Just like an airplane, if you take off you have to land. In this example, Randy and Jane have for the first time started to demonstrate a real landing. While some of the other facts may still connect Randy and Jane to New York, these ties are much thinner than in the prior examples. New York's tax authorities might still argue that Randy and Jane remain domiciled in New York, but the likelihood of their succeeding is looking less likely.
Moral of the Story
Tax rules are tough. You really need to do your homework' take real, affirmative steps to sever your relationships and ties with your old domicile; and establish meaningful ties to your new domicile. The quick and easy approaches advocated in most RV articles and websites will be a great deal for your CPA (lots of billable work defending your audits), but not a great deal for you.
You probably put together a pretty comprehensive checklist the first time you took your RV on the road. Your tax planning deserves no less attention and planning.
Martin M. Shenkman, CPA, Esq. is a tax expert and writes extensively on the importance of planning your tax domicile and taking action so your tax home state is where you think it is. He sponsors a free legal website LawEasy.com.
Martin is an RVer with a special cause. He is an avid fundraiser for the National Multiple Sclerosis Society and The Michael J. Fox Foundation For Parkinson's Research. See his RV4TheCure.com website for how you can help him fight MS. Besides RV business tax and legal information, he will share some of his RVing and fundraising experiences with us.
Caution: This article and other columns can never substitute for professional legal, tax, and accounting guidance. These columns can provide only broad general advice, which may not apply to your situation. The rules differ substantially from state to state. Tax, business, and other laws change rapidly over time so there can be no assurance that the information in this column is current. The best approach is to review the ideas in this article with your own CPA and attorney. The application of general tax and legal principles to some of the unique facts presented by RV working is particularly complex and there is little specific law providing guidance to rely upon.