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State Tax Officials Keeping Eye on Wealthy Former Residents

With the first tax season since the federal tax overhaul now in full swing, the $10,000 cap on state and local tax, or SALT, deductions included in the Tax Cuts and Jobs Act may have wealthy Americans in some high-tax states eyeing moves to cheaper locales. But state tax officials aren’t going to make it easy for high-earning former residents to shed their tax obligations. And that’s actually been the case for years.

 

“Ensuring taxpayers pay their fair share is a top priority; therefore, our nonresident audit program continues to be very active,” said James Gazzale, a spokesman for New York’s Department of Taxation and Finance.

 

When high-end furniture retailer Thomas Campaniello filed taxes for 2007 as a resident of Florida, which has no state income tax, New York auditors disputed his Florida residency and said he owed New York upwards of $488,781. In 2015 the state’s Division of Tax Appeals ruled that while Campaniello spent much of his time in Florida and had showrooms in that state, he also spent plenty of time in New York, his company’s headquarters were there, as well as his wife and his only daughter and grandchild, and that, therefore, he was still a New York resident and owed the full amount of his tax bill.

 

But the auditors aren’t always successful.

 

Four years after Pizza Hut magnate Gene Bicknell sold 790 of the chain’s locations to Merrill Lynch & Co. for an undisclosed amount in 2006, tax officials in Kansas, where he built and oversaw his business, sent him a bill for $42.5 million. Bicknell claimed he’d already moved to Florida, but the Kansas Court of Tax Appeals found that he was a Kansas resident at the time of the sale and ordered him to pay the $42.5 million.

 

In 2016, however, the Kansas Legislature, overriding a veto from then-Gov. Sam Brownback (R), approved legislation allowing taxpayers to challenge tax rulings in district court. Bicknell seized on that opportunity and last week, Senior Judge Richard Smith ruled that Bicknell qualified as a Florida resident in 2006 and ordered the state to return his tax payment with interest and penalties amounting to $48 million.

 

Gregory Blatt, CEO of New York-based IAC and former CEO of its Dallas-based subsidiary Match.com, meanwhile, managed to avoid having to pay a $430,065 tax bill from the state of New York for taxes he filed as a Texas resident in 2009 and 2010 largely due to something known as the “Teddy Bear Test,” a gauge of New York residency which holds that wherever a taxpayer keeps the items they value most is home. In Blatt’s case that was a large, elderly dog, which he had moved to Dallas in 2009, making him a Texas resident in the eyes of the New York tax judge and relieving him of the obligation of paying state taxes in New York. (BLOOMBERG, TOPEKA CAPITAL-JOURNAL)