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By Michael T. Lahti
Many clients for many reasons move to Florida. Some typical reasons include better weather, better taxes, and better asset protection. We provide counsel to our clients on the right way to do this. Some clients inquire about having one spouse reside “north,” while the other resides in Florida. I have always preached caution when clients want to do this, and a recent Rhode Island administrative hearing decision shows why.
First a little background. Part of Rhode Island’s applicable statute, Gen. Laws 1956, § 44-30-5, defines a residence in Rhode Island as:
(a) Resident individual. A resident individual means an individual:
- Who is domiciled in this state. In determining the domicile of an individual, the geographic location of professional advisors selected by an individual, including without limitation advisors who render medical, financial, legal, insurance, fiduciary or investment services, as well as charitable contributions to Rhode Island organizations, shall not be taken into consideration.
- Who is not domiciled in this state but maintains a permanent place of abode in this state and is in this state for an aggregate of more than one hundred eighty-three (183) days of the taxable year, unless the individual is in the armed forces of the United States.
(b) Nonresident individual. A nonresident individual means an individual who is not a resident.
So this statute creates a “two-pronged” test. The second prong contained in § 44-30-5(a)(2) is actually quite straightforward, and is satisfied simply by not residing in Rhode Island more than 183 days of the taxable year. The first prong, “domiciled,” on the other hand is much more subjective and is frequently hammered out when things go wrong. (The issue of “domicile” was what the leading case in Rhode Island, the DeBlois case, fleshed out.)
The DeBlois case set out many of the facts that the state looks at to determine where one is “domiciled.” (Under old common law domicile is established simply by having a place of abode and an actual, permanent intent to live there. Because this is too simplistic, the state looks to the facts to make the determination. Our firm’s 20 point list is a very comprehensive listing of the facts looked at.)
A recent Rhode Island tax administrative hearing (2004 WL 3078823 (R.I.Div.Tax.), dusted off these issues and discussed them directly, while discussing the situation where one spouse resides in Rhode Island, and the other does not. Here the taxpayer in question satisfied the second prong (183 days) easily, but failed the first prong (“domicile” test) and was determined to be a Rhode Island resident for income tax purposes. In a nutshell, the hearing officer looked at the facts (the same facts are on our firm’s handout). The taxpayer’s facts were not as persuasive as the taxpayer in DeBlois. Particularly on point is the following quote from the hearing:
- "What really bothers me is that when half of an intact married couple (the earning half) claims to be a Florida domiciliary, a red flag has to go up. Any domiciled Rhode Island married couple with a condo in Florida can take a few steps to create the fiction that one half of the domicile has changed and use DeBlois, Supra as their basis. But DeBlois focused on the joint actions of a retired Rhode Island couple. Over that particular audit period, their actions manifested a clear intent to create a new home. There is no such clear indication here. Some of the language in the decision would make us think that “intent” is the only necessary factor. The “prerequisites” mentioned in the case are more than perfunctory actions. They are a comprehensive determined and clear set of actions which point to only one conclusion."
So for couples establishing domicile out of Rhode Island, be aware that it is possible to have one spouse domiciled in Rhode Island and one in Florida; but also understand that this raises red flags with the Division, and that domicile must be established independently of the 183 day test.
To discuss any aspect of Estate Planning or Elder Law with an attorney, licensed in Rhode Island, Massachusetts or Florida, call (401) 331-0808, or email your question to info@llo-law.com.