Can I move to a state with no income tax and cut my tax bill?
Any other income you have that is not earned in a specific state (ex. income from securities investments) will be sourced to your resident state. In the example of moving from La. to FL, you would save taxes on investment income from brokerage accounts.
Paying Tax In Two States
When is Taxable Income Sourced to a Specific State?
A state can only tax a non-resident’s business income when the business is considered to have “nexus” in that state.
- Where your main business office is
- Where your employees are working
- Where your income-producing assets are (real estate, equipment, inventory, etc.)
|Situation||Explanation||Escape from La. Income Tax?|
|Retired businessman moves to FL but retains Rental Real Estate property located in La.||Rental Income from the property in La. will always be taxable in La. because the property generating income is located there.||No|
|Website Developer residing in Mississippi working in a home office with no employees, serving clients in La. remotely. No physical visits into La. to work with clients.||Even though all the clients are in La., the state of La. does not have nexus over Web Developer because there is no office, employees, or property located in La., and no physical work performed in La.||Yes|
|An entrepreneur living in Georgia has a trademark on a logo that is licensed to a business in La. who uses the logo in La.||Royalties received by the GA entrepreneur are taxable in La. because the logo (property) is deployed in the state.||No|
|A regional distributor of “Pop Its” located in Texas has a salesperson employed in La. working from their home to solicit orders from La. retailers.||Because the employee works from home, and does nothing but solicit orders, the distributor does not have nexus in La. While its product sales into La. may be subject to Sales Tax, it is not subject to La. income tax based solely on this activity.||Yes|
|YES (activity creates nexus)||NO (activity does not create nexus)|
|making repairs or providing maintenance or service to property sold or to be sold||advertising to solicit sales orders|
|collecting current or delinquent accounts||an in-state resident employee or representative of the company soliciting orders, as long as that person does not maintain or use an office or other place of business in the state other than an in-home office|
|investigating credit worthiness||carrying samples and promotional materials for display or free distribution|
|installation or supervision of installation at or after shipment or delivery||furnishing and setting up display racks and advising customers on the display of the company’s products|
|conducting training courses, seminars, or lectures for personnel who are not involved with the solicitation of orders||providing automobiles to sales personnel for their use in conducting other activities in this column|
|providing technical assistance or service unrelated to the solicitation of orders||passing orders, inquiries, and complaints to a home office|
|investigating, handling, or otherwise assisting in resolving customer complaints, other than mediating direct customer complaints to facilitate requests for orders||soliciting indirect customers for the company’s goods (missionary sales activity)|
|approving or accepting orders||coordinating shipment or delivery without payment and providing related information either before or after an order is placed|
|repossessing property||checking customers’ inventories without charge for re-order purposes|
|securing deposits on sales||maintaining a sample or display room for 14 days or less at a location in the state during the tax year|
|picking up or replacing damaged or returned property||recruiting, training, or evaluating sales personnel|
|hiring, training, or supervising personnel who are not involved with the solicitation of orders||mediating direct customer complaints to facilitate requests for orders|
|sales personal using agency stock checks, etc., to make sales in state||owning, leasing, using, or maintaining personal property for use in an employee’s or representative’s in-home office or automobile only to conduct other activities in this column|
|maintaining a sample or display room for more than 14 days annually at any location in state|
|carrying samples for sale, exchange, or distribution for a fee|
|owning, leasing, using, or maintaining in Louisiana a repair shop, parts department, any kind of office other than an in-home office, warehouse, meeting place, stock of goods other than samples for sales personnel or that are used entirely for solicitation, telephone answering service that is publicly attributed to the company or to the company’s employees or agents, mobile store, real property or fixtures to real property|
|consigning goods or other tangible personal property to anyone for sale|
|maintaining an office or place of business, other than a salesperson’s in-home, non-public office|
|entering into franchising or licensing agreements, selling franchises and licenses, or a franchisor or licensor transferring tangible personal property to its franchisee or licensee in the state|
|shipping or delivering goods into Louisiana by private vehicle, rail, water, air or other carrier, regardless of whether the purchaser is charged a shipment or delivery fee or other charge|
|conducting any other unprotected activity that is not entirely ancillary to requests for orders|
How do you Change State Residency for Tax Savings?
Documentation to Prove New State Residency for Taxes
- Change your mailing address for everything (including documents like life insurance, brokerage accounts, etc.). Obviously use the new address on future tax returns.
- Get a driver’s licence and register your vehicles in Florida
- Register to vote in Florida
- Spend more time at your Florida home than your Louisiana home
- While it’s not absolutely required, it can help if you have a log of where your days are spent
- Auditors are well known to request bank/credit card statements to see where your daily expenses are from.
- If you have a gym membership in La., make sure you get one in FL
- If you have pets, make sure all your Vet bills aren’t from a clinic in La.
- Get your medical prescriptions filled in FL
- Donate to your church in FL
Other Considerations When Changing State Residency for Taxes