High Net Worth Individuals Flee High Tax States
A billionaire recently told his New York staff that he was closing shop and relocating to Florida. Although warmer winters may have played a role in the decision, the move was more likely motivated by an attempt to reduce the entrepreneur’s tax obligations.
Why would tax obligations fuel a move across the country?
The Tax Cuts and Jobs Act (TCJA) resulted in a $10,000 limitation in the State and Local Tax (SALT) deduction. This limitation hit high net worth individuals and businesses in high tax states particularly hard. As such, some are considering relocating to low- or no-income tax states.
Carl Icahn, the billionaire noted above, is one such example.
State income tax authorities are not taking claims a resident has relocated lightly. It is not uncommon for state auditors to investigate the claim, looking for continued ties to the state that could result in continued tax obligations. State auditors generally review business operations, residence of family members and location of most cherished belongs like the family pet or any unique collectibles. The auditor will then use any evidence gathered during the investigation to support a connection to the state to establish the taxpayer continues to have residence within the state — potentially resulting in continued tax obligations.
Will this impact other states, like Maryland?
Although not as highly taxed as New York, Maryland is rated as one of the higher taxed states in the nation. The state income tax per capita in New York is currently set at $2,249 while Maryland is $1,498. Although significantly less then New York, it is still much higher than states like Florida, Texas and Oregon, which have no income tax.
Those who wish to make the transition to a lower or no income tax state are wise remove all ties to the higher taxed state to avoid a finding in favor of the state. This can mean selling property and moving business operations to the desired state. It is also wise to protect your interests by seeking legal counsel if the move does lead to an audit.
