Pub. 17 2018-2019 Issue 1

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 2 , 2 0 1 8 16 new jersey auto retailer Thinking of Moving For Tax Reasons? Know Before You Go Since the federal tax reform laws were enacted, high-tax states have been scrambling to find ways to combat the newly-imposed cap on state and local tax deductions for their residents. States like New Jersey, are exploring a variety of op- tions, including making charitable contributions to state-related organizations or even suing the federal government under the premise that the federal tax reform violates the Constitution. Some New Jersey residents have even explored another option: leaving. While selling your home and moving to South Dakota (or Alaska, Florida, Nevada, Texas, Washington, or Wyoming, where there is also no personal income tax) may seem like a straightforward way to alleviate the possible additional tax burden created by the federal tax reform, it also introduces the tiny problem of uprooting your life. In addition, simply moving out of State may not even be enough to significantly reduce your tax bill, given that your income sources also come into play here. Income earned in New Jersey, such as income that flows through an auto dealership business to its owners, should remain sourced to New Jersey, and income sourced to New Jersey is generally taxed by the State, regardless of the residency of the owner. The sourcing of income earned outside the State, which includes most investment-type income such as interest, dividends, and capital gains from the sale of stock, should follow your state tax residency. Before you consider changing residency for tax savings, it’s import- ant to first understand what it means to be a New Jersey resident for personal income tax purposes. To do this, look at how New Jersey determines tax residency status. Individuals are classified as New Jersey residents when they are either: • “Domiciled” in New Jersey; or • Not domiciled in New Jersey, but maintain a permanent place of abode in the State, and spend more than 183 days here during the year. A person in this position is commonly referred to as a “statutory resident.” BY EUGENE RUVERE, CPA AND AZRIEL SEPTIMUS, CPA