Some folks play games with residency to avoid taxes. But what are residency requirements, exactly?
I mentioned before that at one time or another, I held drivers licenses, voted, and paid taxes in New York, Connecticut, Michigan, New Jersey, Virginia, Florida, and Georgia. What exactly makes one a "resident" of one State and not another? It matters, in terms of voting, taxes, and your driver's license. As I noted on another posting, my driving was so bad as a teenager that my Dad had me get a New Jersey driver's license (and license plates), claiming I was living with my Grandmother. It may not have been on the up-and-up, but there you have it.
Others do things like claim residence in Montana to avoid paying 7% sales taxes or annual property taxes on motorhomes. On a $500,000 motorhome, that could add up to tens of thousands of dollars. For those purposes, there are people who will set up Subchapter-S corporations for you in that State, or otherwise help you claim residency - usually with some sort of postal drop. Legal? Well, the State of Montana doesn't seem to object too much - after all, they still collect fees and taxes, even if they are less than other States - all for a "resident" who doesn't reside much, and thus doesn't use many State resources.
It is like how many oil tankers are registered in Liberia - or even some land-locked country like Bolivia. It illustrates what I have said all along - you raise taxes on the rich, the rich can afford to move. And before you get all up in arms about this, your favorite "liberal" celebrity likely has moved to Switzerland or France or Ireland to duck out on taxes - so many of them do - or has some off-shore holding company to hide money for them. They sound so sincere, sticking it to "the man" in their Emmy/Oscar/Grammy award speeches, after thanking Jesus, of course. But what these brand-managers don't want you to know is they are "the man" themselves.
California decided to pass a tax on those evil 1%'ers - this time going after a potent symbol of wealth, the yacht. Let's tax those rich bastard's yachts! One problem, is that yachts can move, and if you are a rich person living in LA or San Diego, chances are, you spend the some of the winter on your yacht off the cost of Mexico, and thus it is very easy to register your yacht there, and so long as you keep it in Mexican waters for six-months-and-a-day you can argue the rest of the time, you are just "visiting" California and owe no taxes. Plus, the upkeep on a yacht is less in Mexico, too.
But this sort of game can be played at the middle-class level, or at least upper-middle-class. If you have a home in the high-tax Northeast, you can buy a home in Florida and claim it as your primary residence. There is no income tax at all in Florida, although property taxes can be murder in some popular areas. You want a $500,000 beach house in Ft. Myers, it may cost you $10,000 a year in taxes (and another $4,000 a year in hurricane insurance). If you "homestead" the property, your taxes may not go up much over time, however.
In other areas, such as The Villages, you can buy a house for a lot less money, but even at the same price as that beach house, the taxes are a lot lower. And since the income tax is zero, it pays to declare yourself a Florida resident. Not only do your property taxes go up if you are not homesteaded, no one likes to see people with those bright orange New York tags on their car. They will cut you off just out of spite, if not stage an insurance accident. Seriously, though, I thought New York was the center of design and chic - who the hell is designing their license plates? Orange is the new Blue.
Some oldsters have confided in me that they don't declare residency in Florida or even Georgia because they live in fear of the New York State government. Well, when the governor is a former Mafia Don, I guess I would be afraid, too! Pay your taxes, or we take out your kneecaps! There are legends that are passed around in places like The Villages that if you don't stay in Florida for the required six-months-and-a-day, the State of New York will sniff you out and track you down and find out you were in New York for longer - by subpoenaing your credit card receipts and other records to "prove" you are actually a New Yorker and owe taxes to Albany!
Sounds pretty far-fetched to me. But it illustrates how big government has taken hold of the minds of people in the Northeast. We just cancelled our reservations to the Iles de Madeline this summer. PM Trudeau has extended the border closing until July 31st, and even if you can make it across the border, there is a 14-day quarantine in some provinces, so even if you cross provincial boundaries, you may have to sit in your camper for two weeks, slowly losing your mind. Vermont has similar prohibitions - you have to check-in by cell phone for two weeks. Maine wants you to quarantine for 14 days as well. What is it about the cold and frozen North? I mean, yea, New York City is a hot spot, but not the Adirondacks. It is the old Red State - Blue State conundrum. People in Blue States are afraid of their own governments, as evidenced by these fright stories passed around in The Villages.
A better idea is to just move away from such places. It is a lot cheaper to visit by RV or whatever, and they can't tax you for that. Well, I suspect they'd still like to try! The problem with such taxation models, is, of course, that you spend more money going after people than you would collect in taxes, and moreover, it ends up driving people away. The government tries to "make an example" of some unlucky taxpayer by nailing him to the cross - as a warning to others. Some fun, eh? And you wonder why people are fleeing the Northeast for States where the government is more afraid of the people than vice-versa.
But getting back to residency, a reader writes asking how Trump can get away with declaring residency in Florida. The ultimate snowbird, Trump owns properties in New York City and in Florida, in particularly the old Merriweather Post estate - now his Mar-A-Lago club. He tried to register to vote in Flordia, but stupidly used an out-of-State address on the application form.
It raises an interesting question - how can someone such as an elected Federal Official, establish residency? If you are a Congressman from Ohio, you have to by law (in most jurisdictions) have residency in the jurisdiction you represent. Yet, as a US Congressman, you might spend more than six-months-and-a-day in Washington, DC, and even own a house there. So where are you resident?
For us lesser mortals, it isn't such a big deal to obtain residency. In most States, there really isn't so much of a process or procedure to become a resident, other than to be one. If you rent or buy a home there, hold a driver's license, register to vote, and - most importantly of all - pay taxes, then you are considered a resident. The State collecting taxes from you isn't going to deny your residency based on the fact you spend more time out-of-State than in. Other States, however, might make a play for your tax money. That is, if you were rich.
For us mere mortals, it ain't worth going after small-fry taxpayers who might be in the state for a month or two and owe maybe a few hundred or couple thousand in taxes. But for rock stars and sports teams, it is a different deal. We learned in tax law class that some States consider it "income" you "earned" in their State if you put on a stadium rock show there and earn a hundred grand. Capo Cuomo wants a taste! Or in this case, the Commonwealth of Massachusetts! Big arena shows and sports events are low-hanging fruit for the tax authorities, so they go after it.
For Presidents, the law isn't that clear, but Congress passed a law exempting itself from having to pay State taxes to DC, Maryland, or Virginia (the three places Congressmen typically live while in Washington). So, if you are a Congressman from Ohio, you pay taxes in Ohio, not in Northern Virginia. But if you are a musician from Ohio and perform at Wolf Trap in Virginia, you may have to pay. Of course, taxes you pay to a foreign State are usually not double-taxed in your home State.
By the way, the next section of that code prohibits States from taxing pensions from residents of others States. Sounds silly, I know, but many a New Yorker has claimed to me that they would have to pay New York State income taxes, even if they resided in Florida, on their New York State pension, which was given as a reason they stayed in New York. 4 USC 114 would seem to say otherwise, but again, the palpable fear people have of Albany (pronounced All-Bany here in Georgia, we have one, too) is staggering.
But getting back to Trump, it looks like he will have to fight the State of New York tooth-and-nail to avoid paying taxes there. He may have to reincorporate some of his businesses in Florida, and perhaps move some offices there as well. Until he is out of office, it will be hard for him to establish residency there to the satisfaction of New York tax auditors. On the other hand, an audit doen't scare Trump much - he gets audited every year, and he would love to drag it out to the point where the State of New York will spend millions in legal fees and overhead to collect hundreds of thousands at most.
Again, there reaches a tipping point in the tax business where people will fight you, as it is cheaper to fight than just pay. If you raise taxes enough, people will "Exile on Main Street" to another country just to avoid the tax man. And many of those other countries will welcome you (and your money) with open arms, and many of them are, in fact, pleasant places to live - sometimes more pleasant than the home country!
On a smaller scale, if you tax people enough in one State in America, they may be inclined to move to another. I know I did. If I had moved to New York and sold our house in Georgia, my property taxes would have quadrupled, my income taxes doubled, and the sales tax would have nearly doubled. And for what? The privilege of shoveling snow? As I noted before, the delta in tax rates is staggering, and it is hard to comprehend where all this money is going. After all, these same low-tax Southern States have robust industries, low unemployment, and fewer people on welfare.
Oh, right, I just put my finger on it. And no, these same Southern States are not "takers" just because more military bases and defense contractors are located there.
Trump, if he is smart, will eventually move to Florida, after he leaves office, which I would suggest should be in January of 2021. Just a thought, there Donny. Whatever Cuomo threatens, eventually Trump can legitimately move himself and his businesses there if he chooses to do so, and I suspect his brand and his businesses will be tarnished by his time in office, as they already are. Maybe if he is smart, he will retire, and maybe his kids can get into the booming and corrupt Florida real estate business - it was made for a Trump!
But eventually, he can do it. The State of New York can't keep him prisoner on 5th Avenue forever!