Savant Wealth Management

If you split your time between an Illinois residence and a Florida residence one common question is, “Can I change my residency to Florida to avoid Illinois state income tax?” The common answer is, it depends.

So, what does it really depend on? The State of Illinois looks at multiple factors to consider and determine residency, the focus areas being domicile, time spent in each state, and prior legislation and court cases.

Domicile is defined as “a person’s fixed, permanent, and principal home” for legal purposes. A taxpayer may only have one domicile. If you lived and worked in Illinois for the majority of your life, you are most likely domiciled in Illinois. One of the first steps to take, if you are serious about switching to Florida residency, is to revoke your Illinois domicile and file a written declaration of domicile in Florida. This can usually be done at the county courthouse in Florida where your residence is. You will also need to get a Florida driver’s license, register your automobile or boat in Florida, and update any estate planning documents to conform to Florida law.

Another important component in determining residency is your time spent in each state. In a recent court case, Cain v. Hamer (2012), credit card statements were used to determine where the taxpayers were physically located during the year. If your credit card statement shows transactions in Florida for only three months of the year, compared to nine months in Illinois or other places, it could be challenging to be considered a Florida resident.

The Cain v. Hamer case has received media attention over the past few years due to its favorable ruling for an Illinois “snowbird” who switched residency to Florida. The general facts of the case:

  • Illinois residents from 1964-1995
  • Built second home in Florida in 1995
  • Took steps to establish residency in Florida in 1996 (were considered Florida residents from 1996 on)
  • Split their time almost 50/50 between Illinois and Florida
  • Owned a company in Illinois – but had little involvement with it after 1995

A few years after establishing Florida residency, the Illinois Department of Revenue sent the Cains a notice of tax deficiency for unpaid state income taxes for the years 1996-2004. The Cains argued that they were not Illinois residents during this time and produced the documentation they filed to become Florida residents. The court determined that the ruling be determined by the domicile test. The domicile test was based on four factors:

  1. Physical abandonment of the first domicile
  2. An intent not to return to the first domicile
  3. Physical presence in the new domicile
  4. An intent to make that one’s domicile

The court decided that the ties that remained in Illinois were outweighed by the Cains changing their driver’s licenses and filing a Florida domicile declaration. The taxpayer’s intent was clear: they wished to be Florida residents even though they kept ties to Illinois.

Seeking to be a Florida resident is not as easy as it may seem. For snowbirds in a similar situation as the Cains, there are many hurdles to clear before becoming a Florida resident and avoiding Illinois income tax. While this case ruling favored the Cains, there is still uncertainty around the subject. Be aware of the risks when changing your residency from an income tax state to a non-income tax state, and consult with a qualified professional.

Sources: Cain v. Hamer (Illinois First District, First Division 2012), Snowbirds fly free of Illinois tax (Illinois State Bar Association’s Newsletter of the ISBA’s Section on Trusts & Estates, March 2013)

For informational purposes only. Not intended as tax or legal advice. Each individual’s situation is different and you should consult your tax and/or legal professional regarding your personal circumstances.