Paul L. Caron

Monday, March 15, 2021

COVID-19: The Year Of The Great Tax Migration

Timothy P. Noonan & Emma M. Savino (Hodgson Russ, New York), COVID-19: The Year of the Great Migration, 99 Tax Notes State 897 (Mar. 1, 2021):

Tax Notes StateWe have seen all sorts of changes in behavior over the past 12 months as a result of the COVID-19 pandemic. Remote working. No live music. Limited (or no) family gatherings. And, for some, an extra 15 pounds. But in the state and local tax world, we’ve seen another striking change in people’s behavior.

People. Are. Moving.

They are moving to Florida. They are moving to the Hamptons. They are moving home to live with their parents. They are moving in with their kids. They are leaving California, Illinois, New Jersey, and New York, and they are landing in places with lower taxes and, usually, better weather. And many need tax advice!

Here at Noonan’s Notes World Headquarters, we’ve generated more residency-change checklists and playbooks in the past 12 months than we’ve probably sent out in the last 10 years. And the types of situations we’ve seen are so much more varied and different from the typical retirees shuffling off to their shuffleboards in Florida. Hedge-fund millennials are moving. Parents with young kids are moving. Taxpayers in their working prime are moving. And with these moves come a whole host of interesting tax issues.

So this month, we thought we’d dive into these residency issues a bit more and give you a glimpse into the world of a tax residency practitioner during 2020 and 2021. ...

Conclusions and Take-Aways
The many different factual scenarios that have been presented to us over the past year have uncovered so many interesting and nuanced residency and nonresident income allocation issues. On the whole, we can take away a few important points from these scenarios:

  • People are moving. There’s no getting past the tremendous flight from New York and, to some extent, from states like Connecticut and New Jersey over the past 12 months. This creates many tax policy issues beyond the scope of this article, but it also raises an interesting audit issue. Can these states chase everybody? The New York State Department of Taxation and Finance, in particular, has had the most sophisticated and aggressive audit program in the nation for years. In most cases, not only can we predict circumstances that will lead to an audit, but, sometimes, we are also pretty good at guessing when the audit will happen. Historically, high-income taxpayers who claimed a change of residency from New York had almost a 100 percent chance of being audited. But will that change? Will New York be able to audit everybody?
  • Be mindful of both residency tests. In 2020, and maybe in 2021, many people will probably be absent from New York for more than 183 days. But we should never forget that this alone does not make a taxpayer a nonresident. Be mindful of the “leave and land” rule — residency is not just six months and a day outside New York.
  • 20/20 hindsight will be key. A taxpayer who moves in 2020 or 2021 is not likely to be audited until 2023 or 2024. And where the taxpayer is living and working in 2023 or 2024 could be as critical a fact in the analysis of the residency case as his work and living locations in 2020 and 2021. This is the “leave and land” rule in action — the taxpayer must be able to prove that they “stuck the landing” in the new state.
  • No COVID-19 relief here. COVID-19 relief bills are all the rage, but do not expect any easing of day counting or residency rules because of COVID-19 travel restrictions or quarantine rules. No state has yet relaxed any residency rules because of COVID-19 circumstances. The world may be different, but the rules are still the same.

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