This year, many wealthy taxpayers are getting an unwelcome surprise.
While the 2017 Tax Cuts and Jobs Act offered plenty of perks for the financially blessed, one component of the law is hitting the residents of high income tax states hard. A $10,000 cap on how much taxpayers can deduct for state and local taxes (SALT) is sowing unhappiness in rich blue states like New York and California.
While one answer may be to move, many wealthy taxpayers are loath to leave these attractive states. State tax auditors are also strict, forcing residents who claim to have moved prove it by producing evidence, such as itemized moving manifests, to show that they’re really shoved off.
Take the example of Gregory Blatt. He was a young executive at InterActiveCorp when, in 2009, his boss asked him to take the job of Dallas-based subsidiary Match.com. Gregory wasn’t keen on moving. Single and glamorous, he had a $2.4 million apartment in Greenwich Village and loved summer in the Hamptons. He tried to work out of New York at first, traveling to Dallas as necessary.
Blatt claimed to have fallen in love with Dallas. He rented an apartment, joined a gym, and filed taxes there. It’s a lot easier to love Dallas when you remember that Texas has no income tax. Two years after moving to Dallas, Blatt moved back to New York to take over as CEO of IAC. Not long after, a New York audit found that he owed $430,065 in back taxes.
Naturally, Blatt appealed. One test for New York residency is called the “Teddy Bear Test,” which ties residency to the location of items dear to the taxpayer. Blatt had moved his elderly dog to Dallas in 2009, which led the NY judge to find in his favor and declare that Dallas had been his home.
For more examples of curious tests to determine residency in high tax states, please see:
Tales of SALT Woe From the Rich Who Try to Flee High-Tax States | Wealth Management