Snowbird Exemption: How State Tax Residency Works

The “snowbird” lifestyle of splitting time between a warm-climate state in the winter and a home state in the summer creates challenges with state tax residency. People with homes in two states can be claimed as a resident by both tax agencies, leading to potential double taxation. The term “snowbird exemption” is a colloquialism, not a formal tax provision.

There is no special tax break for snowbirds. To avoid being taxed as a resident in a high-tax state while wintering in a low-tax one requires understanding two legal concepts: domicile and statutory residency. States use these standards to determine who is a resident for tax purposes, and navigating them is necessary to avoid being taxed in multiple states.

Establishing Your State of Domicile

A person can have many residences but only one domicile. Your domicile is the place you consider your permanent home and intend to return to after any absence. Domicile is a test based on your intent, demonstrated through your actions and connections to a state. Tax authorities review the “totality of the circumstances,” so no single factor is decisive.

Official ties are often the first items auditors examine, including the state that issued your driver’s license, where your vehicles are registered, and where you are registered to vote. These are important but are not considered the most significant factors on their own because they are relatively easy to change.

Financial connections clarify a person’s center of economic life. States look at the location of your primary bank accounts, especially the checking account for daily bills. The location of your financial advisors, accountants, and attorneys also carries weight. Keeping a safe deposit box in a former state can be a red flag to an auditor.

Compelling evidence of domicile relates to personal and family ties. States place importance on the location of items “near and dear” to you, like family photos, heirlooms, and collections. The residence of your spouse and minor children is a strong indicator, as is where you maintain memberships in religious or social organizations.

Navigating Statutory Residency and the 183-Day Rule

Separate from domicile is the objective test of statutory residency. You can be domiciled in one state but treated as a resident for tax purposes in another if you meet its statutory residency requirements. This rule prevents people from claiming domicile in a low-tax state while spending most of their time and keeping a home in a high-tax state. Failing this test is a common and costly mistake.

The basis of statutory residency is the “183-day rule.” Many states with an income tax consider you a statutory resident if you are physically present there for more than 183 days during the tax year. For most states using this rule, any part of a day spent in the state counts as a full day.

The day count is only one part of a two-part test. To be a statutory resident, you must also maintain a “permanent place of abode” in the state. This is a dwelling you own or rent that is suitable for year-round use and has cooking and bathing facilities.

Both conditions, exceeding the day count and maintaining a permanent place of abode, must be met to trigger statutory residency. Some states also require that the taxpayer has a “residential interest” in the property, meaning they use it as a residence. The safest action is to track your days to stay under the 183-day threshold in any state that is not your domicile.

Documentation to Support Your Residency Status

In a residency audit, the burden of proof is on you to provide clear evidence of your status. Declaring a low-tax state as your domicile is not enough; you must defend the claim with extensive documentation. Proactive record-keeping is the best defense against a challenge from a tax agency.

A travel log or calendar tracking your location for every day of the year is a fundamental piece of evidence. This log is your primary defense against a 183-day rule claim. Each entry should be corroborated with supporting documentation to build a comprehensive file. Important documents to keep include:

• Travel receipts: Airline tickets, fuel purchases, and hotel bills can pinpoint your location on specific dates and substantiate your travel patterns.
• Financial records: Credit card and bank statements show where you are making everyday purchases, and a pattern of consistent spending in your claimed domicile state strengthens your case.
• Utility bills: While you will have bills for both locations, significantly higher usage for electricity, water, or gas at your primary home can support your claim.
• Professional service records: Documentation of visits to doctors, dentists, financial planners, or attorneys in your domicile state helps establish your life’s center of gravity.

State Tax Filing Obligations for Snowbirds

After determining your residency status, you must fulfill your state tax filing obligations correctly. A snowbird’s filing requirements are tied to their domicile and activities in their non-domicile state. Filing incorrectly can lead to audits, penalties, and interest.

As a resident of your domicile state, you must file a resident tax return and report all income, regardless of where it was earned. This includes wages, investment income, and retirement distributions. If your domicile is in a state with no income tax, you may not have a state filing requirement there.

In your non-domicile state, your filing requirement depends on whether you earned income from sources within that state. If you have no income from that state, you do not have to file a tax return there. If you have state-sourced income, like rental income from your second home, you must file a non-resident tax return for that income.

Improper filing can lead to being classified as a resident by both states, resulting in double taxation. If this happens, you may claim a tax credit on your resident return for taxes paid to the non-resident state. It is better to establish a clear residency status from the outset to avoid this complication.