A born and bred New Yorker, President Trump is cutting his ties with his beloved city, according to documents filed with the Palm Beach County Circuit Court in September. The document was a standard “declaration of domicile,” stating that Trump’s Mar-a-Lago Club in Palm Beach will be his permanent residence once his tenure as president is up. The first lady filed an identical document.
According to tweets confirming the news, Trump wrote, “I cherish New York, and the people of New York, and always will, but unfortunately, despite the fact that I pay millions of dollars in city, state and local taxes each year, I have been treated very badly by the political leaders of both the city and state. Few have been treated worse.”
Safe to say, one doesn’t have to look far to see where he’s coming from. Manhattan District Attorney Cyrus R. Vance Jr. has been actively after the president’s tax returns, filing a subpoena for their release. And, confirming the state’s distaste for the president, New York Gov. Andrew Cuomo fired back at the announcement, tweeting “Good riddance. It’s not like @realDonaldTrump paid taxes here anyway... He’s all yours, Florida.”
Tax Implications
Despite his soured relationship with the city, Trump’s reason for swapping out the “concrete jungle” and Trump Tower for his Palm Beach enclave may have a lot more to do with, you guessed it, taxes.
According to Parker F. Taylor and Vanessa Woods in their April 2019 Trusts & Estates article, New York has a relatively high income tax rate and, additionally, imposes state estate taxes—making it less attractive to high-net-worth individuals looking to reduce their tax bills. The Tax Cuts and Jobs Act (TCJA) only made it worse by virtually eliminating the state and local income tax deduction.
Florida, on the other hand, has no state income, estate or gift tax, making it an appealing tax domicile. In fact, even before Trump’s decision was announced, Gov. Cuomo himself cited the TJCA as a major reason New Yorkers are changing their domiciles to Florida, according to Taylor and Woods.
Taylor and Woods warn, however, that simply spending 183+ days in a new residence doesn’t necessarily qualify it as an individual’s domicile. In their article, Taylor and Woods cite a court case, Matter of Campaniello v. New York State Div. of Tax Appeals Trib., 2018 NY Slip. Op. 03400 (2018), in which a taxpayer was found to have failed to abandon his New York domicile despite spending more than 183 days in his Florida condominium. The court particularly noted that the taxpayer continued to receive mail, see doctors and conduct business in New York.
Additional Steps Required
Individuals who spend time split between two residences may have to go the extra mile to prove their intent to make one state their domicile. According to Taylor, who’s a partner and chair of the Private Client Services group at Hughes Hubbard & Reed in New York City and Miami, “Trump may experience difficulties if he doesn’t get rid of his New York City residence (Trump Tower) and sever his domiciliary links with New York completely.” Taking other additional steps, such as switching his location on Twitter and other social media is also advisable. (See Taylor and Woods’ article for a complete list of steps to consider.)
Taylor also noted that “If [Trump] is still active in his business after his presidency and it’s still being run out of New York, continuing to make frequent business trips to New York could also pose a potential domicile problem.”
Is It Worth It?
From a tax standpoint, Taylor posits that such a change in domicile may not be as lucrative as it seems for someone like Trump. “Because of his businesses, he’s still going to be subject to New York state income tax on New York sourced income, such as rental income from his properties, though any income derived from real estate located outside of New York or intangible investments would no longer be subject to New York city or state tax.”
