Let’s say I’m contemplating the digital nomad life for a year because of COVID, traveling from state to state, staying at temporary lodging for a few weeks at a time. Can I simply abandon my current residency (Illinois) and not establish a new one anywhere?
How would that work with state taxes? Health insurance (weird that it’s a state by state thing)? Wills and DNRs and such? I guess voting wouldn’t really work then, but then again the electoral college means my votes have been worthless anyway, so not much of a loss there.
I’m not a resident of any US state (or even the US) for tax purposes, since I live in Panama. However, I am entitled to vote in the last place I resided (and voted) in the US in a national election, which is Washington DC. At least in my case, I remain registered to vote there as long as I continue to vote (by absentee ballot) in presidential elections.
As always, I am not a lawyer but I play one on the internet.
There’s apparently three concepts in play here; residency, domicile, and statutory residency.
Residency is the simple one. It’s basically saying you live in a state and pay your taxes there and vote there.
Domicile is more complex. It’s the equivalent of being a citizen of a state. In most cases, your residency and your domicile will be the same. But there are exceptions like Colibri, who is a legal resident in Panama but is domiciled in the District of Columbia. Or to use more common examples, if you’re in the military or attending college, you might be domiciled in one state even though you spend the majority of your time in another state, where you are a legal resident.
The upside of domicile is that it allows you to vote from a state. The downside of domicile is it generally makes you liable to state taxes. (There are some other situations like establishing a corporation, applying for bankruptcy, getting a divorce, or disputing child custody where your domicile will be an issue.)
The general principle seems to be that the only way you lose a domicile is by replacing it with a new one. If you’re domiciled in one state and move out of it but don’t establish a domicile in a different state, your old domicile is presumed to still be in effect. So when you start your nomadic lifestyle, Illinois will still claim you.
Statutory residency is a special case. It’s when a state acknowledges that you have a domicile in another state but still feels you have a residency in their state. Like say you have houses in two different states; you might claim one of those states as your domicile and the other state might agree - but still declare you as a statutory resident based on your ownership of the house in their state. The general reason for this is to place a liability on you to pay taxes in that state.
I’m like Colibri, voting in IL. But no one has suggested that I pay taxes there. I file US tax returns (although foreign tax credits wipe out any actual payments) and get to vote in my last state of residence.
I have no idea of the OP. I imagine you will still be domiciled in your last state and get your licenses and plates from them.
So, from what @Little_Nemo said the “domicile” concept makes you liable for state taxes in the last state you lived in if you turn itinerant within the U.S. But not if you move abroad - only the IRS keeps coming after U.S. citizens for taxes if they move abroad (net of foreign tax credits).
The interesting question this raises would be if you returned to the U.S. to live an itinerant life touring the country in an RV. Presumably there can’t be a loophole here - even if you never returned to IL, you’d have to resume paying IL taxes when you resumed residency within the U.S.?
The most obvious strategy here would be to establish domicile in a state that has no income tax, and then go itinerant. That does seem like a valid loophole.
Domicile can run pretty deep. It’s even possible for it to be passed on through generations. If you’re the child of American citizens, born outside of the United States, you may be considered to have the same domicile as your parents even if you have never physically been present in that state or even the country.
Yes, and the concept is not unique to the U.S., although the implications vary. I’m from the U.K., long time U.S. resident, and the U.K. (like everywhere other than the U.S.) doesn’t demand income tax from me if I’m living abroad. But so long as my domicile is still the U.K., my estate would be subject to U.K. inheritance tax. This makes perfect sense - you can’t just get out of paying inheritance tax by moving abroad to a tax haven when you’re about to die. It is possible to establish domicile in another country, but that requires that you live abroad much longer, demonstrate that you don’t have a residence or substantial ties to the U.K.
Which taxes. I recall a thread we had some time ago that state income tax is due to the state you earn them in, not automatically the state you reside in. If I live in South Carolina but work in Georgia what state do I owe SIT to?
And not just the license- I don’t think I have to provide proof of residence to register a vehicle but insurance policies require both an address for me and also the location where the vehicle is “principally garaged”. I haven’t been able to find a definition for “principally garaged” in my state, but in another state it was defined as at least six months a year. If I registered and insured an RV in State A because it was going to be located in State A at least six months per year , State A just might decide I qualify as a resident if I have no residence other than that RV ( which remember, I said would be in State A at least six months per year)
Maybe both - if I live in NJ and work in NY , I owe taxes to both states ( although NJ allows a credit for the taxes paid to NY, up to the amount that would have been owed if the income was earned in NJ)
One issue I had was when I took a job in Arizona. One of the security guards at my school (I think a failed cop) reported me to the State for still having my California plates*. I found out
State law requires that you obtain an Arizona vehicle registration and driver license, immediately, if any of the following apply:
You work in Arizona (other than for seasonal agricultural work).
Yes that is direct from the Arizona MVD site. Which means you could live in Needles, Calif and work at the ARCO station in Mohave Valley, Ariz and you would be required to register your car and get a drivers license in Arizona. I’m not sure how the dual-registration would work (do you have to display both plates?) but getting an Arizona driver’s license invalidates your California licence … you know, the license from the state you actually reside in.
*It was literally move to Arizona the weekend just before school started. Failed Cop reported me on the first day of school. How do I know it was him? There was video of him in the parking lot behind my car waiting for the police to arrive to cite me.
I believe the general principle is that if you do work in a state where you are not domiciled, that state may tax income earned while working in that state; whereas your state of domicile can tax all income wherever earned, but giving credit for other states’ taxes to avoid double taxation.
Domiciled in NJ which has a lower tax rate, you’ll end up paying the higher NY rate on the income earned in NY, the lower NJ rate on the income earned in NJ. If you were domiciled in NY, you’d end up paying the higher NY rate on everything.
Hello and Welcome to Arizona,
For many of you, one of the first items on your to do list as you get settled into our great state will be to obtain an Arizona Driver License and title and register your vehicles.
It’s clearly addressed to people who have just moved to Arizona ( as you had) and not people who live in California and work in Arizona. There might be some law that requires what you say , but this page is about when people living in Arizona must change licenses ( for example, students from out-of-state don’t have to even if they work , and people who live in Arizona less than 7 months in a calendar year don’t have to unless they work, register kids in school without paying nonresident tuition rates)
( The security guard was definitely an asshole, though. He works for the school, he surely knew people had just moved right before classes started. )
Wait, so if someone attends a work conference in another state, or pulls out their laptop at the hotel every night for a week, they owe that state a week’s worth of income taxes? That doesn’t seem right either. How do truckers handle it? Surely there has to be some establishment of residency or domicile before you start getting taxed, not just the act of working temporarily?
The internet makes tax codes seem so antiquated. Funding government based on where employees are working any given day?