By Harry S. Margolis
If you've thought of establishing residence in Florida or another low-tax state to save on income and estate taxes, a recent New York state case sheds light on what steps you need to take. In the case of the Matter of Campaniello, the taxpayer, Thomas Campaniello had extremely high income, over $10 million in 2007, the year in question, including profits on the sale of real estate. This no doubt motivated him to seek to avoid New York state and city income taxes and motivated the New York tax authorities to go after him.
What happened in this case
The New York Division of Tax Appeals decision interestingly tells Mr. Campaniello's history. An Italian by birth and education, he came to the United States in 1963 after meeting and ultimately marrying an American school teacher who he had met when she was vacationing in Italy. They are still married and have one daughter. Although having a Ph.D. in agronomic engineering, he had trouble finding work due to his heavily accented English. He became the US agent for Lamborghini farm equipment and subsequently began importing Italian furniture, which he built into a substantial business with showrooms in New York, Miami, and Chicago.
He also invested in real estate in New York and Florida. He developed a routine of traveling to Florida on Fridays and back to New York on Tuesdays. For the first time in 2007, when he sold a Florida building at a $5 million profit, Mr. Campaniello filed a non-resident tax return for New York State.
In determining whether Mr. Campaniello was domiciled in New York in 2007, the Division of Tax Appeals found that:
- He spent 169 days in New York in 2007. He also traveled to Italy during the year, beginning and ending his trip in New York.
- His primary care physician and dentist were both in New York.
- He did not obtain a Florida drivers license until 2008.
- He also first registered to vote in Florida in 2008.
- There is no evidence that he filed a homestead declaration in Florida.
- While he submitted evidence of receiving his Social Security benefits in Florida in 2010, he did not show where they went before that. (He was 77 years old in 2007.)
- He could prove that he had moved his Italian diploma, a 1988 Ferrari, and a prized guitar to Florida prior to 2007.
Based on this evidence, the administrative law judge determined that Mr. Campaniello owed New York State and City $488,781 in taxes for 2007 plus interest.
So, what can you do to establish residency (domicile) in Florida (or elsewhere) and avoid a similar result either for yourself or for your heirs. (The Massachusetts estate tax kicks in for estates of $1 million, and Florida has no estate tax.) Take these steps:
- Spend at least 183 days a year in Florida.
- But also spend less than five months in Massachusetts—don't cut it too close.
- Register to vote in Florida.
- Register your car in Florida.
- Make sure your Social Security and other income gets deposited into an account with a Florida address.
- File a homestead declaration in Florida.
- Update your estate planning documents for Florida.
- Get a Florida accountant.
- And get your medical care with Florida physicians, dentists, therapists, chiropractors, etc.
If you take all of these steps, it will be hard for the Massachusetts Department of Revenue to argue that you're a Massachusetts resident. You will have to decide (1) whether it's worth the trouble and (2) whether Massachusetts actually deserves your taxes if this is where you earned your income and raised your children.