Do You Know Your Client's State of Residency?

As the filing deadline for federal and state income tax returns quickly approaches, practitioners should ask themselves if they really know where their client resides for state income tax purposes.  Given the changes in the job market over the past few years, many individuals and families have moved and/or experienced a change in employment location.   These changes may require tax return preparers to take a second look at various states' residency or domicile statutes. 

Determining residency can be crucial because often residents of a state are taxed on all of their income while nonresidents pay tax only on income derived from or connected to the state.  Also, with numerous states having no state income tax, taxpayers may be motivated to establish residency in one of these states.  LexisNexis State Tax Practice Insights, which provide expert analysis on state tax issues, are a great resource practitioners can look to when navigating state residency statutes. 

As a reminder, active military personnel generally fall under federal statutes which generally provide that the state in which you join the military is considered your state of residency.  Thus, the state where the military person is stationed cannot tax the military pay. However, if the military person or spouse takes an outside job while stationed in another state, those earnings can be taxable to that state but a nonresident return would be prepared.

RELATED LINKS: For insights on state residency requirements and issues, see:

• Residency and Domicile Are Closely Intertwined in Determining New York Personal Income Tax, Lexis NY Tax P.I. 482.
• Connecticut Rules for Determination of Residency Are Based on a Taxpayer's Domicile for the Year, Lexis CT Tax P.I. 2,400.
• California Requires Nonresidents and Part-Year Residents to Allocate and Apportion Their Income to California, Lexis CA Tax P.I. 550.
• Massachusetts Definition of Residency and Domicile for State Income Tax, Lexis MA Tax P.I. 1,370.
• Taxpayers with Multiple or Changed Domicile Present Special Challenges for Practitioners, Lexis PA Tax P.I. 2,136.
• Personal Income Tax: Residency and Domicile, Lexis UT Tax P.I. 5,682.
• Understanding Residence and Domicile in Virginia, Lexis VA Tax P.I. 3,203.

Also, see:

• 1-8 Bender's State Taxation: Principles and Practice § 8.02

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