Should I move to a "no tax" state?

 

    I receive many inquires about "my state taxes are to high - I'm going to move."  Well, in all honesty, it's Minnesota taxes me to death and literally, they do.  But in reality there's more to just moving to a state with lower state income taxes or no state taxes.  

Factors to determine residency: 

 
Generally speaking there are six common factors that States look at when determining if a tax payer is a domiciliary resident.

1.    Time spent in the state
2.    Type and use of home
3.    Employment or business relationships
4.    Location of near and dear items (such as family heirlooms and photos)
5.    Family connections
6.    Miscellaneous factors - such as:
            mailing address
            driver's license
            voter registration
            location of doctors, memberships
            places of worship

Some states have statutory residency rules, where you can be considered a state resident even if is not your domiciliary state.  States imposing this classification consider the number of days in the state and if more than 183, you may be considered a resident.

Other considerations:

    Moving to a state without individual income tax or lower individual income taxes can help reduce said taxes but --- it may not eliminate tax exposure.  Real estate taxes, sales taxes and estate taxes may be higher due to the lower state taxes -- one needs to look at the big picture.

1.    Real estate taxes fluctuate greatly from state to state.  
2.    Sales and use taxes - no state states often have high sales tax over a broader rage of purchases
3.    Estate and inheritance taxes - matters greatly in the transfer of assets and wealth between generations.
4.    Business licenses, gross receipts and occupation taxes -- it varies ...
5.    Franchise or entity level taxes -- LLC's, partnerships and corporations may owe tax based on revenue, net worth, capital or just doing business in that state.
6.    Payroll and employment taxes - relevant costs for business and your employees.
7.    Real estate transfer, excise or document taxes 
8.    Local taxes -- yep, there are some municipalities that have their own "taxes" - for real.
9.    Pass thru entity taxes and credits
10   Industry specific taxes - fuel, hospitality, insurance, health care -- regulated sectors often have specific taxes.

    Even if you move and meet the domiciliary resident requirements in a low/no tax state -- but have income from another state, most likely you will pay income taxes as a non-resident in that state.  One needs to review the total tax picture beyond state income taxes as part of the analysis before moving - especially if you own a business, have investment income (and/or property), receive equity compensation and have ties to multiple states.