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Warning to High-Tax Refugees…

Posted by taxguru on May 15, 2019

Just as the antebellum plantation owners didn’t just roll over and allow their slaves to escape without attempting to bring them back, the rulers of the high tax states do often go after their escaping taxpayers for tax money, as in these recent articles about New York.  Making it even more difficult to defend against these kinds of attacks from your previous State’s tax agency is the fact that, as a non-voter in that state, you have no recourse through your elected officials.

New York, California get ‘aggressive’ when residents try to flee high taxes (FoxBusiness)

Tax collectors chase rich New Yorkers moving to low-tax states  (CNBC)

As residents flee New York’s high taxes, state uses intrusive audits to get cash from defectors (FoxNews)



None of these tactics  by New York should be news to listeners of the Rush Limbaugh show.  Rush constantly complains about being audited every year by the New York tax authorities, even though he relocated to Florida in 1996.  He is forced to document by several different means where he was working every single day of the year in order to prove that he didn’t earn any money inside the State of New York. 

Just as with the IRS and Federal tax issues, the burden of proof in State tax disputes lies with the taxpayer.  All it takes is for the IRS or State tax agency to accuse you of owing taxes and you are presumed to be guilty.  The tax agencies do not have to provide any substantiation for their claims.  The accused taxpayers have to come up with the evidence to prove that they don’t owe the money.

This isn’t a new issue in the tax world.  I have been dealing with the matter of the proper tax homes of clients for decades, especially in California, where clients have relocated their tax homes to tax free states, such as Nevada, Washington and Texas. I can also remember discussing the subject in many of my live tax seminars back in the 80s and 90s, with the example of George H. W. Bush.  While he and Barbara spent most of their non-DC time at their estate in Kennebunkport in Maine, they had established Texas as their official tax home so that none of their income was subject to income tax by Maine.  Their Texas residence was a hotel room.  

Avoiding taxes in high-tax states, especially Calif, used to be even harder to do for retired people.  Calif used to take the position that pensions were earned while working inside that state and even if the person retired to another state or country, Calif was entitled to its taxes on all of the pension benefits.  I can recall fighting with FTB over several of those kinds of cases.  Luckily, a law was passed a number of years ago preventing Calif and other tax-greedy states from taxing the retirement benefits of former residents.

As I have always made very clear, I am a huge proponent of people arranging their affairs, including where they live, to minimize the amount of their wealth that is confiscated by the various levels of government.  Relocating to a state with lower or zero taxes is still a very savvy tax savings strategy, especially with the new ridiculous $10,000 annual limit on the Schedule A deduction for State And Local Taxes (SALT) that should be the breaking point for more people to want to escape the clutches of the high tax jurisdictions.

Anyone who is planning to make such a move should definitely work with a professional tax advisor who can help them do it properly in such as way as to be able to defend against their former States’ tax agencies. 


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