The extra time at home during the COVID-19 pandemic has provided an opportunity for many to consider a move, even a potential move out of state. Minnesota is a great state with many desirable attributes, but its high taxes are not one of them.  So, many retired Minnesotans choose to relocate to Florida* to avoid, in no particular order, our winters and our taxes. 

This must be done carefully and deliberately to avoid the scrutiny of the Minnesota tax authorities. Here are 3 things to consider before making the move.

1. Why change?

If you are a resident of Minnesota, the state can tax all your income, no matter where it is earned.  But if you become a resident of Florida or another state, Minnesota can only tax the income you earn from sources within the state.  So, income like IRAs, pensions, Social Security, interest, dividends, and capital gains on stocks escape tax in Minnesota. 

As you might imagine, Minnesota, like other northern states, is not too keen about the idea of losing the right to tax long-term resident’s retirement and other income, and tends to be aggressive in making retirees prove that their move was bona-fide.  The Minnesota Department of Revenue even has offices in Florida to capture tax-evading snowbirds.

2. The two tests

Minnesota uses two approaches to treat individuals as residents for tax purposes.  The first is based on the person’s domicile (a subjective test) and the second is based on physical presence in the state (an objective test).  Minnesota law defines a Minnesota resident as a person who is (1) domiciled in Minnesota, or (2) domiciled outside Minnesota but who maintains a “place of abode” in Minnesota and spends more than half the year here. 

The subjective domicile test applies to everyone.   That is, to move your residence to another state, the facts and circumstances must show an intent to change your domicile.   The second test, the so-called 183-day rule, applies in addition to the domicile test if you retain a place of abode in Minnesota. 

So, to take advantage of Florida’s tax laws, you must prove to Minnesota that you are no longer domiciled in the state because you have established a new domicile in Florida, and if you keep a place of abode in Minnesota, you must further prove that you spent less than 183 days in Minnesota.

Domicile

“Domicile” is a legal concept that refers to the place you consider to be your permanent home and to which you intend to return when absent.  It is a question of your intent – where, in your mind, is your true “home?” 

Minnesota and other states use a “laundry list” of factors as evidence of a person’s domicile.  These 26 factors are listed below.  Note that no single factor is dispositive.  

For example, the Department of Revenue recently stated that the location of an accountant, attorney, or bank account does not, by itself, demonstrate the intent to retain domicile in Minnesota.  Instead, the factors are analyzed as a whole to determine where you have the strongest connections.  It is pretty clear, based on case law, that the most important single factor is physical presence in a state.

Place of abode

A ”place of abode” is defined as any dwelling, owned or rented, that contains cooking and bathing facilities and is maintained by the taxpayer.  So, it is a pretty broad definition.

3. Planning ahead

The key to changing your residence is planning ahead.  The more you do to establish connections with the new state and sever ties to Minnesota, the better your chances of prevailing if Minnesota challenges your move. 

If you are thinking of relocating, you should look at each item on the list below and make as many changes as you can.  And you should plan on spending less than half the year in Minnesota.  

Be aware that Minnesota and other northern states are aggressive in their enforcement of residency changes.   Upon audit, they will examine cell phone, bank, and credit card records to establish your location on every day during the year.   This can be especially critical if you keep a home or cabin in Minnesota and must meet the less than 183-day test.     

The 26 factors listed in Minnesota’s tax regulations are as follows:

1. Your domicile in prior years.
2. The state in which you are registered to vote and actually vote.
3. Your status as a student.
4. The location of your employment.
5. Whether your employment is temporary or permanent.
6. The location of your new home, either owned or rented.
7. The status of your former home, listed for sale, rented, etc.
8. The homestead status of your new and former residences.
9. The location of your other real estate.
10. The state from which your driver’s license is issued.
11. Whether you have obtained resident or nonresident fishing or hunting licenses.
12. The state from which you have obtained your professional licenses.
13. The location of your union memberships.
14. The state in which your vehicles are registered and located.
15. Whether you have filed resident or nonresident state tax returns.
16. Whether you have met the state tax obligations of a resident.
17. The location of your bank accounts, particularly your primary checking account.
18. The location of your other financial institution transactions.
19. The location of the church you attend.
20. The location of your business transactions and relationships, including professional service advisors (e.g., attorneys, accountants, doctors).
21. The location of country clubs and other organizations of which you are a member.
22. Where your mail is received.
23. The percentage of your non-working hours spent in Minnesota or each other state.
24. The state where you collect unemployment benefits.
25. The location of schools attended by members of your family and whether you pay resident or nonresident tuition.
26. Statements made by the taxpayer’s insurance company.