- As a tax lawyer, Mark Klein, has seen wealthy individuals continue to relocate to tax-free states.
- While savings are the main reason, cultural fit also plays a role in relocation.
- For movers, it isn't as simple as picking up a driver license — you must prove that you live there.
This as-told-to essay is based on a conversation with partner and chairman emeritus at Hodgson Russ LLP, Mark Klein, who specializes in tax law. The conversation was edited for length and clarity.
I'm a tax lawyer who specializes in residency issues, and half of my job is helping people move to other states without triggering all sorts of nasty taxes — and, in other cases, avoiding high taxes and going to low-tax states.
When people realize they have this greater flexibility, and if all other things are equal, why not save a bunch of money?
Many of my clients don't just put the money in their pocket. They use it for good things, they use it for charitable means that are important to them, and they just don't like what the government seems to be doing with the money, so it makes sense for them.
One of the reasons that the Florida real estate market was booming after Covid is because people realized that they could work just as effectively from anywhere. You didn't need to go to the office when you could do just as well with a computer and a telephone. And so a lot of people moved to Florida.
Finance is big, but consulting services are as well. If you're a consultant, you just need to be where a telephone is.
I thought we'd seen the bulk of the moving as a result right after Covid, but no: it seems to have continued unabated.
And we're seeing a lot of people who are enjoying liquidity events. They're about to sell their business that they've been working at forever. New York City, depending on your income, you could pay 15% tax on whatever it is you make, so you sell your business for $100 million, which is a lot of money, but still $15 million goes just from taxes.
People feel that they could do a lot better with $15 million than the government. I think that's one of the reasons that we're seeing a continued push for people moving to places like Florida or Nevada or Texas or wherever.
The more income you have, the more flexibility you have.
Saving money is a large factor, but not the only one
Some of my clients are billionaires with a capital B, and they have tremendous sources of income that would not be taxed by a state like New York if they were simply a Floridian.
They can continue to come back to New York now and then and they can keep a place in New York. Some of them even have their own planes, so they don't worry too much about getting in line at TSA. They can go where they want to go when they want to go, and it does save them a lot of money.
My clients are all over the country. I think Nevada has become very popular, especially the Lake Tahoe area for people who were in Los Angeles or the Silicon Valley area. You can live on one side of Lake Tahoe and pay no taxes versus the other side of Lake Tahoe and pay California taxes, which is around 12%.
We're seeing people move to Wyoming, of all places because there are no taxes. And people absolutely love nature and their ability to commune with wild animals. That seems to be popular.
Some people are even moving up to Washington state, which really doesn't tax you unless you are a gazillionaire. It depends on where your interests lie. Some people are into nature, and so Wyoming would be perfect. Some people are into the Miami scene.
New York to Florida is still the most popular — especially to the east coast of Florida. We find a lot of people from New York City and Long Island find that the culture is kind of the same on the East Coast, whether it's Palm Beach or Boca or Delray or Miami.
Clearly, Florida has a tremendous attraction in the winter, given that you can leave Florida in the middle of summer and hurricane season.
People with means absolutely find themselves going to Florida, but I don't think it's just for the money. I think also it's a better way of life. They can drive to the grocery store in the middle of winter and not worry about icy roads. But certainly saving 15% is kind of gravy.
In order to avoid an audit, you need more than just paperwork
A lot of people don't understand the rules. The very common misconception is that if I go to Florida and I spend 183 plus one days, I'm a Floridian. And nothing could be further from the truth.
The law says you have to move to a place like Florida, and you have to prove that you did it by clear and convincing evidence. Now, I don't know what that means, but I know what it doesn't mean.
If you're in New York for six months and in Florida for six months, that's not clear and convincing. That's anything but. The other misconception is that people think that if they go to a place like Florida, they fill out an affidavit of domicile, they register to vote, they get the homestead exemption and a driver's license, somehow the residency fairy will tap them on the shoulder and make them a Floridian.
Should you do those things? Sure. But states don't have a lot of respect for paperwork. If I went to Florida right now and filled out a bunch of paperwork, does that make me a Floridian? No. It just means I'm really good at papers. It's the way you live your life. People who want this to work have to be willing to change the way they live their lives.
God forbid you're ill and you come back to the Tri-state area for medical care, that's okay. We expect people are going to look for the best medical care they can. But if you need to go to the dentist to get your teeth cleaned, shouldn't you go to a dentist near your home? It's very unusual for people to travel 1,500 miles north just to get their teeth cleaned. It's the kind of thing you do at home.
An even better indicator is, tell me where your spouse is. Most spouses wait at home when the other spouse needs to travel for business. Tell me where your dog is located. Who keeps their dog with them when they commute to work or when they're on vacation?
Where do you sleep at night? There are a lot of people here in Manhattan who don't pay a penny of New York City income tax, even though they're here every day and their job is here.
We look at what they call the "near and dear test," where are things that are important to you located?
The assumption is that most people have their good stuff — their nicest stuff — in their homes. It's going to really look weird if you don't claim to be a New Yorker, but you've got a $5 million piece of artwork on the wall, and your Peloton is here, and your best golf clubs and your Steinway piano, or whatever the heck you're into, are in New York.
Auditors look at that, too. We always tell people that being audited for residency is kind of like the tax version of a colonoscopy. It's very intrusive.
The political climate is not really favorable for the super-wealthy, and they feel kind of put upon. Here in New York City, the top 1% of the taxpayers pay almost 50% of the New York City income tax. One percent pays 50%. The idea that my clients are told in the press that they're not paying their fair share and that we should increase taxes on them doesn't sit well with them.
They feel that they're doing their fair share, they're paying more than their fair share, and to make them pay more because they can, that drives people away. And people are a lot more mobile than they used to be as a result of the pandemic.