The KatzAbosch SALT Shaker: Details Matter When Changing State of Residence

Frequently our Maryland resident clients will move to Florida when they retire to enjoy the warm, sunny Florida weather in the winter.  One of the other benefits of living in Florida is there is no state income tax or estate tax in Florida.  However, sometimes Maryland does not want to give up taxing these retirees claiming they have enough connections to the state that they still owe taxes to Maryland, even after moving to Florida.

The key to cutting off the Maryland tax obligation is to change your domicile to Florida, meaning Florida is the place you intend to permanently remain and always return to after traveling. Proving a Florida domicile is accomplished by establishing facts that support your intent.

Income Taxes

In a recent Maryland court case (McDermond v. Comptroller, Md. Ct. Spec. App., September Term, 2014, No. 1299, 07/09/2015), a taxpayer was deemed to continue to be a Maryland resident and subject to income tax because their Maryland connections continued.  For instance, the taxpayer:

Maintained a place of abode in the state for more than six months of the taxable year;
Retained and renewed his Maryland driver’s license;
Failed to make any social, civil, or other connections in the new state;
Continued to attend his Baltimore church when he was present in Maryland for business;
and Failed to affirmatively cancel his Maryland voter registration.

Estate Taxes

Like other states with estate taxes, Maryland will tax real and personal property left behind in Maryland, after the move to Florida. If the retiree does not properly cut the Maryland connection, these Maryland assets may show the continuation of the Maryland domicile and all of the estate’s assets may be taxed by Maryland. For instance, if a Maryland residence is maintained for the occasional visit, Maryland may argue the domicile was not changed and the full estate is subject to Maryland tax. Talking with your estate professional is vital to make sure there are no estate tax surprises.

Avoiding these Maryland taxes can be accomplished with proper planning and actions to cut the Maryland connections. The KatzAbosch SALT and Estate and Trust groups can help clients make sure the Maryland tax connection is reduced or eliminated and clients can enjoy all of the benefits from their new home state.  Please contact Andy Bareham or Lori Kirk at KatzAbosch if you have any questions regarding changing state domicile.

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