What is Legal Residence?
Section 253 annotations to the Family Law Code define "residence" as "the place including the outer boundaries where a natural person has established a physical presence intending to remain there for some time, a fixed habit of abode, and where the person sleeps." Of course, actual joint residence creates a rebuttable presumption of the parties intent to remain married. If a spouse moves out during the pendency of legal proceedings, however, establishing a new residence is more ambiguous. The more recent residence is clearly nontraditional, and opens up issues of domicile and intent. As espoused above, a residence creates a rebuttable presumption. A person can have more than one residence at a given time, and either may be presumed to be his or her domicile.
Domicile is a common term for a natural person’s legal residence. In accordance with California law, "residence" has the same meaning as "domicile," although there have been cases that highlight the difference. (See e.g., In re Marriage of Panno, 217 Cal.App.3d 326 [qualified for spousal support in California despite living in Oregon for nearly all of the parties’ married life because she maintained her car registered in California and voted in a California election]). Domicile has long been understood in law as a combination of a physical presence in a given place and an intention to remain there. This intention has been held to be the "controlling test" in determining legal residence. (See Commonwealth v. Shoy, 8 Pa.Cmwlth. 496, 302 A.2d 834 [Pa.Cmwlth 1973]). If an individual establishes a new domicile, however, he or she must abandon the prior domicile. This requires not only a physical departure from the former residence , but also a concurrent intention to abandon that domicile.
The historical bases for these requirements are rationalized in the early case of Fisher v. Burch, 82 Mass. (16 Gray) 10 (1860). There, the court explained:
"Of the two requisites to the establishment of a legal domicile, – actual residence and intention, – the former seems to require the accomplishment of some specific act, such as occupying a tenement or paying a tax. But the latter, that intention, – or, in the language of the civilian, animus manendi, – is a more subtle thing, never directly susceptible of proof, by anybody but the party himself, and requiring several different kinds of acts and expressions, different in different cases, to prove it. To get at it, recourse must be had to what the party does, says, is heard to say, and even, perhaps, how he looks and carries himself; giving rise again to a difficulty that must be got over, now, by the jury; now, by a judge or referees; and again, by somebody else; till the proof is finally either consummated or defeated.
"It was likewise necessary that this proof should go one step farther, and show, not only the intention, but also the continuance of that intention, in order to make the residence a legal one, by its continuance for ten, at least, out of the twelve months of each year."
Id. In modern times, the determination of whether a person is domiciled in a given jurisdiction for purposes of the laws of that jurisdiction can require proof that it is more likely than not that a party meant to make a certain location their home. A number of factors can be considered. In the realm of divorce, there is an implicit aspect of residence, based on one year of residence prior to filing, but not a more focused intention to make a particular state, such as California, your permanent residence or domicile.
Purpose of Legal Residence Declaration
It is imperative that individuals declare a state of legal residence because that state becomes the governing jurisdiction and primary point of contact for numerous essential legal matters. This can include areas such as taxation, voting, and access to state specific benefits. The state of legal residence is also critical for determining an individual’s liability for state taxes, where they should vote, which driver’s license they should obtain/maintain, which car insurance to choose, whether they owe personal property taxes, and much more. As such, the failure to declare a state of legal residence can result in missed opportunities to take advantage of state specific programs, as well as an unnecessary increase in tax liability and other expenses.
Requirements to Establish Legal Residence
The criteria for establishing legal residence, or a permanent domicile, in a state vary with time spent in the state and with various types of documents showing intent to be a resident of the state. Typically, 6 months is the dividing line. If you were domiciled in a state for at least 6 months of the year, that state claims that you are a full time resident for filing purposes. If you spent less than 6 months in the state, your residency is determined by where you spent the most time during the year.
Many states require that in order to be considered a resident, you must live in the state for at least 183 days per year, or 6 months; however, to be sure, you should check your new State’s Rules, as not all states require this. There are some states that do not have a time requirement, however.
The "Intent" Test looks at the actions taken to establish a new home. Some of the criteria include: Change in driver’s license, Insurance coverage for auto, house and umbrella, Voter registration, Change in address on accounts with financial institutions, Change in address with credit card companies, Change in address on medical and dental accounts, Change of address on Professional licensing, Duration of stay in new State, Cancellation / termination of prior residence lease, Termination / sale of boat slip, Termination / sale of timeshare, Termination / sale of other property, Cancellation of membership in clubs such as golf, tennis, health, gyms, country clubs, etc., Cancellation of membership in membership stores including Costco, BJ’s, Sam’s Club, Neiman Marcus Last Call, Tanger Outlet Mall; Bank of America, Chase, Fidelity, E Trade, Trade King, E Trade, Interactive Brokers, etc.
Residency vs Domicile
The terms "residency" and "domicile" are often used interchangeably; however, the terms are different, both in law and in practice. For many people, legal residence and domestic may be the same. The United States Supreme Court, in Kossick v. United Fruit Co., 365 U.S. 711 (1961), defined both terms.
Legal residence is generally defined as "a somewhat uncertain term which means in its application to individuals something more than physical presence and which is subordinate to the question of domicile [a question which must be determined in each case upon all the surrounding facts". … Sometimes a person may have several residences at the same time but only one domicile; ‘residence’ is more a matter of fact than law and one can have two or more residences without having two domiciles."
Kossick, supra at 714-715. In determining an individual’s closest association and most permanent location, the term residency is more important than domicile. Therefore, for practitioners, establishing the client’s state of closest association is paramount. An individual’s residency may be different than his or her domicile. Both the Federal and South Carolina tax courts have held that residency must be based upon the totality of the facts and determined on a case by case basis. Furthermore, a person may change residency without changing domicile.
Changing Your State of Legal Residence
If you have recently moved, or are a full-time student embarking from one state to another, you may wish to change your state of legal residence. The question becomes how to go about making that change and how the change may impact you.
The process to change your state of legal residence is necessarily governed by the laws of the relevant states. In general, it involves taking steps to demonstrate that you have moved to the new state and intend to stay there. A common set of steps includes acquiring domicile in the new state, including securing new permanent housing in that state; securing contact with the old state through means such as retaining a professional license or contacting family; forwarding mail to the new address and/or registering to vote in the new state. You should also begin to make business contacts in the new state, and work to make your presence known to the local community.
The laws of some states, however, do not require much of a process to effect a change of residence. For instance, changing your legal residence from one state to another only requires you to be physically present in the new state. In California , any person who is physically present in the state with an intent to remain is deemed to be a resident. That means moving from California to another state to attend law school or for another temporary purpose does not necessarily make you a non-resident. Since determining residency is a fact-based inquiry, you should seek the advice of a trusted advisor before making a determination regarding your state of legal residence.
In general, you want to make sure that you do not continue to hold yourself out as a resident of the old state if that is no longer true under that state’s applicable residency laws. Holding contradictory positions in different forums will expose you to increased scrutiny and possible tax liability. Also, some states have particular restrictions on residency changes. California, for example, imposes a broad net on its statutory residency provisions. The effect of this is to prevent a sudden, one-time move out of state for temporary purposes from changing a person’s residency for state income tax purposes. You should pay close attention to the statutory language of your home state.
Consequences of Incorrect Residence Declaration
Failure or incorrect declaration of state of legal residence is significant.
While the Chaffetz-Lankford amendment will not deny payments to individuals who fail to declare a state of legal residence, persons who do not do so are exposed to other risks. A person takes on considerable risk of legal repercussions and potential penalties under state laws if he or she is found to be in a state without the proper license, credential, or other authorization. These laws serve to protect the integrity of each state’s licensing process and prevent misrepresentations from being made to clients or other persons working or doing business with a licensee. For example, the Texas Insurance Code Annotated, ยง 4001.051 entitled "Unauthorized Insurer; Prohibited Activities" states, in pertinent part: (a) A person may not do business in this state as an insurer unless the person is an authorized insurer. (e) A person commits an offense if it: (1) acts as an insurer in this state without a certificate of authority issued by the commissioner; (2) advertises in this state that it is engaged in the business of insurance or offers insurance to a person residing in this state or whose principal place of business is in this state; and (3) requires the return of a policy, endorses or cancels a policy issued by an authorized insurer, or otherwise takes action that assumes the place of an authorized insurer with respect to a policy issued by the insurer. … (j) An offense under this section is a Class A misdemeanor. Because "state of legal residence" has become such a slippery term, state licensing boards may well become-or have already become-interested in that being defined or at least limited to a particular locality or community. Consider this example: An optometrist lives with his family in "Tornado Alley" and passes the Texas board exam in order to work in Dallas (where there are more jobs available than in his native community) but never informs the Texas licensing authorities that he is a "legal resident" of Dallas. If he then moves back to "Tornado Alley" and sees patients out of a home office in his native town, it would be reasonable for Texas to conclude that he is "doing business" in Tornado Alley without a Texas license. As a result, an action may be initiated by the Texas Board of Optometry to revoke his Texas license, accuse him of practicing outside of the scope of his license, or otherwise pursue any statutory or disciplinary action against him. Each state regularly reimburses approximately 15% of the dentist’s total Texas license fee, keeping 85% to help administer the license. Each state may also receive a matching federal subsidy, so they may not take lightly to a dentist with 4 or 5 state licenses who works primarily of the time at his or her home location but calls that location "alternative practice" and claims a different location is his or her "legal residence."
State Residency Impact on Tax Liability
State of legal residence is generally the state that is your true, fixed, and permanent home and where you intend to remain, even if you are required to be elsewhere for a certain period of time for special circumstances; and the state you call home should be your office of record.
The state of legal residence can have a significant impact on your tax obligations. Each state has its own laws regarding income tax – and taxes can vary significantly from state to state. State income tax is in addition to your federal tax obligation.
In general, state tax laws fall into two categories: the graduated income tax and the flat income tax. A graduated income tax is structured as a progressive tax. That is, the higher your income level, the higher your tax rate; on the other hand, the lower your income level, the lower your tax rate. For example, every state has different tax brackets for their graduated taxes which apply to different income levels; the same is true of the rates at which each bracket is taxed .
Flat income tax means that the same tax rate (and the same base tax) is applied to an individual’s taxable income level regardless of its size. For example, an individual may pay $5,000 on his/her taxable income of $100,000 and $50,000 on his/her taxable income of $1 million; essentially the same rate is applied on all levels of income.
One key component of state tax laws that can have an impact on your overall tax obligation is the property tax. Property tax is a tax lien on your real property (land and improvements like buildings), based on the value of the real property owned; these real property taxes are due regardless of whether a physical property exists and is taxable.
Without question, taxes are not a popular thing, and other than death, they are the only other NOBODY escapes. Unfortunately, they are an unavoidable part of owning property and owning a business, so understanding your tax obligations is key to your success.