Pub. 1 2019 Issue 6

N O V E M B E R / D E C E M B E R 2 0 1 9 12 nebraska cpas You’ve probably seen a couple like Ray and Shirley.* They are now retired and are considering a move to Arizona. They intend to stay in Arizona far longer than Nebraska. However, they want to keep their longtime Nebraska home. After all, they still have friends and family in Nebraska. They’ve asked for your help to establish that they will no longer be Nebraska tax residents. Nebraska’s Rules on Tax Residency As Nebraskans, we never like to see people leave our great state. However, many choose to leave Nebraska for a variety of reasons. Often, those people retain certain connections to Nebraska, including a second home, an ownership or leadership position with their company, or other personal or family ties. This presents a combination of facts that often confuses the question of which state is their true state of residency. Like many states, the Nebraska Department of Revenue is focusing on this question. Nebraska tax law establishes that a person will be deemed to be a Nebraska resident if either of two tests apply. Test #1: A person remains a Nebraska resident i f t hat person mai ntai ns a permanent place of abode in Nebraska (meaning a house, apartment, etc.) and spends, in the aggregate, more than six months of the year in Nebraska. Test #2: A person is also deemed to remain a Nebraska resident if that person is domiciled in Nebraska. Domicile is the place where a person has his or her true, fixed, and permanent home. Our Nebraska Supreme Court has stated: “No exact definition can be given of domicile. It depends upon no one fact or combination of circumstances, but from the whole taken together, it must be determined in each particular case.” Unfortunately, this legal standard leaves a lot of wiggle room for Nebraska to tax you as a Nebraska resident. Declaration of Abandonment To effectively change your tax residency to your new state, you must not only change your domicile but also establish a clear intention to permanently abandon your existing domicile. So, for clients who are considering leaving Nebraska to establish residency for tax purposes elsewhere, the execution of a Declaration of Abandonment will be very helpful in establishing that those clients abandoned their Nebraska domicile and that this occurred on a specific date. The declaration needs to be carefully tailored for each client to provide the necessary facts and support a legally defensible result. Steps to EndNebraska TaxResidency How can a person end their Nebraska residency for tax purposes? The strict legal test of domicile is extremely fact-sensitive. Several critical steps must be taken, some of which include the following: • Declaration of Abandonment. You must establish that you have abandoned your Nebraska domicile. The Declaration of Abandonment helps establish this. • Vote in Your New State. And keep a copy of your voter registration and a log of elections you voted in. • Sentimental Items. Move these to your newhome (and keep a list of the sentimental items). • Driver’s License . Change your driver’s license to your new state. • TravelRecordsandCreditCardStatements . Keep a log of your time in Nebraska and elsewhere. Travel records and credit card statements are very helpful to establish your location throughout the year. • Estate Planning Documents . Several steps here, such as execute new Wills, Financial Powers of Attorney, and Health Care Powers of Attorney that designate your new state of residency. • Communit y Involvement. Become involved in the community and recreational organizations in your new state. Consider whether to terminate your memberships to such organizations in Nebraska. • Consistent Statements of Residency. Be consistent with your change of residency. For example, don’t try to qualify for a benefit by claiming Nebraska residency. Assume that all of your statements on residency, in whatever form, will become facts in a potential tax case. • Business Owner Planning. A variety of special, specific actions is needed for business owners. These can include how the business is owned and managed, among other factors. The best way to realize the results you want is to address this before your clients move. If, however, your clients find themselves on the receiving end of a review notice or questionnaire from the Department of Revenue, be sure that the legal standards and precise facts are thoroughly considered before responding. t RESULTS REALIZED: CRITICAL STEPS TO ESTABLISH A NEW STATE RESIDENCY FOR NEBRASKA TAX PURPOSES BY NICK NIEMANN AND MATT OTTEMANN, MCGRATH NORTH Nick Niemann and Matt Ottemann are state and local tax and incentives attorneys who collaborate with CPAs to defend both individuals and businesses before the Department of Revenue. Visit them online at www.NebraskaStateTax.com. For a copy of their publication, The Anatomy of Resolving State Tax Matters, please contact Nick or Matt at (402) 341-3070 or at nniemann@mcgrathnorth.com or mottemann@ mcgrathnorth.com, respectively. * No actual client name used.