Moving From a High Tax State to a Low or No Tax State
Exploring tax and lifestyle opportunities, challenges, and the planning needed
Relocation has always been about lifestyle—but for many individuals and families, it is also about strategy. Moving from a high tax state to a low or no tax state may reduce ongoing tax obligations, preserve more of a family’s wealth for future generations, and support broader life goals.
While the potential benefits are compelling, the decision is not simple. States differ widely in their tax treatment of income, capital gains, retirement withdrawals, and estate transfers. Residency rules can be complex, especially when someone maintains ties to more than one state. Lifestyle adjustments—from climate to cost of living—also carry long-term implications.
This paper explores the financial benefits, lifestyle and business considerations, the types of individuals most likely to benefit, state-by-state contrasts, and the complexities of changing domicile. Each section concludes with a sample case study (for illustrative purposes only) to demonstrate how these considerations may play out in practice.
Section 1: Financial Benefits
Key Facts and Considerations
Moving to a state with little or no income tax can have an immediate effect on household cash flow. Beyond income tax, relocation may also impact capital gains, retirement distributions, and estate planning:
- Income Tax: Some states impose rates exceeding 10%, while others impose none.
- Capital Gains: States differ on whether gains from the sale of securities, businesses, or real estate are taxed.
- Retirement Withdrawals: Pension and IRA distributions may be taxed in some states but exempt in others.
- Estate & Inheritance Taxes: A few states still levy estate or inheritance taxes, but many have eliminated them.
Sample Case Study (For Illustrative Purposes Only): Retiree Couple Relocating for Tax Efficiency
James and Linda, both in their early 70s, had spent decades in New Jersey. Their retirement income came from pensions, RMDs, and investment earnings. Their annual state tax bill exceeded $40,000.
Considerations: They wanted to understand how Florida’s lack of state income tax would affect their retirement withdrawals, whether they needed to update estate documents, and how keeping a vacation home in New Jersey might complicate their domicile claim.
Actions Taken: They purchased a Florida home, established domicile by changing driver’s licenses and voter registrations, and worked with their attorney to redraft estate documents. They sold their New Jersey residence to eliminate ambiguity.
Outcome: The couple eliminated state income tax on their pensions and RMDs, saving nearly $40,000 annually, while updating their estate plan to comply with Florida law.
Key Takeaways
- Relocation can immediately reduce income and investment tax burdens.
- Estate planning documents must be updated to reflect state laws.
- Retaining property in a high-tax state may complicate domicile claims.
Section 2: Lifestyle & Business Advantages
Key Facts and Considerations
Relocation often improves more than just tax efficiency. Many low or no tax states also offer:
- Lower Cost of Living: Housing, utilities, and everyday expenses are often cheaper.
- Climate and Lifestyle: Warmer weather and outdoor activities attract retirees and families.
- Business Climate: States like Texas and Florida have reputations for being more business-friendly.
- Remote Work Flexibility: Professionals can increasingly live where they want while maintaining income.
Sample Case Study (For Illustrative Purposes Only): Business Owner Transitioning from California to Texas
Maria, 58, owned a consulting firm in San Francisco and planned to sell. California’s 13.3% income tax would consume a large portion of the proceeds. She also sought a lower cost of living and an environment supportive of her next venture.
Considerations: Timing the move relative to the business sale, ensuring compliance with Texas domicile rules, and balancing her team’s operations in California.
Actions Taken: She established domicile in Austin before the sale, relocated her executive office, and worked with legal and financial advisors to restructure her trust documents.
Outcome: By closing her sale as a Texas resident, Maria avoided California’s high state tax on the proceeds, saving millions. She also lowered her living costs and positioned herself for future ventures in a business-friendly state.
Key Takeaways
- Relocation can improve quality of life and reduce daily expenses.
- The timing of a move relative to business transactions is critical.
- States with low- or no-income tax often provide broader business advantages.
Section 3: Who Considers Moving?
Key Facts and Considerations
Certain individuals are more likely to benefit from relocation:
- Business Owners: Planning around a liquidity event can magnify benefits.
- Retirees: Lower taxes on distributions and a warmer climate are attractive.
- High-Income Earners: Annual savings can compound significantly over time.
Sample Case Study (For Illustrative Purposes Only): High-Income Executive Choosing Tennessee
Ethan, 45, was a senior executive based in New York. With an income exceeding $2 million annually, he paid more than $200,000 in state taxes each year. He frequently worked remotely and wanted to explore Tennessee as a no-tax alternative.
Considerations: Ensuring Tennessee domicile would withstand scrutiny, documenting his time spent outside New York, and revising his equity compensation strategy.
Actions Taken: Ethan purchased a home in Nashville, registered to vote, obtained a driver’s license, and documented his travel carefully. He also restructured equity compensation with advisor guidance.
Outcome: Ethan reduced his annual tax liability significantly while retaining career flexibility. He prepared for potential audits by maintaining meticulous documentation.
Key Takeaways
- Relocation is most advantageous for those with significant taxable income.
- Equity and compensation structures must align with state tax laws.
- Documentation is essential to defend domicile in case of audits.
Section 4: High vs. Low or No Tax States
Key Facts and Considerations
- High-Tax States: California, New York, New Jersey, and Illinois impose some of the steepest tax rates.
- Low or No Tax States: Florida, Texas, Tennessee, and Nevada levy no income tax.
- Other Considerations: Families must weigh factors like healthcare access, schools, housing, and proximity to relatives.
Sample Case Study (For Illustrative Purposes Only): Family Comparing New York vs. Florida
The Patel family lived in New York but considered Florida. Their analysis included projected state taxes, tuition residency rules, and proximity to extended family.
Actions Taken: They purchased a Florida home, established residency through licenses and voter registration, and applied for a homestead exemption. They retained a small rental in New York for occasional visits.
Outcome: The family reduced their tax liability by over $100,000 annually but accepted higher travel costs to visit family in New York.
Key Takeaways
- Tax savings vary widely depending on state of residence.
- Lifestyle, family ties, and healthcare access are equally important.
- Relocation should balance both tangible and intangible benefits.
Section 5: Complexities of Changing Residence
Key Facts and Considerations
Relocation is not as simple as buying a home in a new state. States with high tax burdens actively challenge domicile changes. Common pitfalls include:
- Retaining significant property or business interests in the former state.
- Spending too much time in the former state.
- Having inconsistent legal, financial, and medical records.
- Spouses claiming different domiciles.
A common thread in residency disputes is that risk increases in proportion to the ties you maintain with your former state. The simplest way to prove a new domicile is to fully disconnect from your previous one. If you retain a vacation property, the risk of audit—and the risk of losing that audit—becomes greater. Similarly, if one spouse claims residency in a low or no tax state while the other remains domiciled in a high-tax state, the lines blur further. These blurred connections often increase the likelihood of both being audited and having a weaker case during review.
Sample Case Study (For Illustrative Purposes Only): Dual-State Domicile Challenges
Mark and Susan split time between New York and Florida. They claimed Florida residency but kept a Manhattan apartment, spent nearly half the year in New York, and retained New York-based doctors and accounts.
Actions Taken: With professional guidance, they shifted banking, physicians, and memberships to Florida, meticulously documented their time in each state, and eventually sold their New York apartment.
Outcome: They successfully defended their Florida domicile during a New York residency audit, but only because they had comprehensive records and lifestyle consistency to back up their claim.
Key Takeaways (Section 5)
- States with high taxes may audit relocation claims aggressively.
- Establishing domicile requires both paperwork and lifestyle alignment.
- Couples with ties to multiple states must take extra precautions.
Applying These Principles in Practice: A Closer Look at New Jersey
While the themes in this paper apply broadly across many states, New Jersey provides a clear example of how aggressive tax authorities can be when challenging a claimed change of domicile. Two areas stand out as particularly important: keeping a vacation home in the state and spouses attempting to establish different domiciles.
Keeping a Vacation Home in New Jersey After Changing Domicile
The Core Risk
New Jersey courts generally presume that a person’s domicile continues until proven otherwise. If you retain a residence in New Jersey, the state may argue it remains your true home base—especially in the context of audits, estate settlements, or divorce proceedings.
How to Mitigate the Risk
- Clearly designate the New Jersey property as a vacation home only.
- Keep your primary residence, driver’s license, and mailing address in the new state.
- Do not use the New Jersey address on tax returns, wills, or legal documents.
- Change all official records—government IDs, voter registration, vehicle registrations, banking, and healthcare providers—to the new state.
- Limit New Jersey stays to seasonal or vacation use, while building deeper integration in the new state (schools, community, religious ties, medical providers).
Things to Avoid
- Using the New Jersey property as your mailing address for any federal or state filings.
- Spending significant portions of the year in New Jersey.
- Retaining a New Jersey driver’s license or voter registration.
- Maintaining employment or business connections tied to the New Jersey address.
Practical Approach
It is not ownership of a house in New Jersey that creates the greatest risk—it is how much of your life continues to revolve around it. When the New Jersey property is truly a vacation home, and your permanent connections are clearly established elsewhere, the argument for a change of domicile is much stronger.
Can Spouses Have Different Domiciles?
Yes, Legally Possible
Domicile is an individual concept, and courts recognize that each spouse can establish domicile independently if the facts support it.
But It Raises Scrutiny
The New Jersey Division of Taxation and the courts will look very closely at:
- Where the family home is located.
- Where children (if any) live and attend school.
- How joint property is maintained.
- How federal and state tax returns are filed.
If one spouse claims Florida domicile while the other remains in New Jersey, auditors may argue that the “family unit” is still New Jersey-based.
Federal Filing Status Complications
Filing joint federal returns can increase the risk. New Jersey may argue that because income is pooled, both spouses remain residents. Filing “Married Filing Separately” at both the federal and state level may strengthen each spouse’s domicile position, though it comes with trade-offs.
When Split Domicile Works Best
This approach is most defensible when one spouse truly relocates—selling property interests, establishing full residency in the new state (license, voter registration, homestead exemption, healthcare)—while the other legitimately remains in New Jersey for career or family reasons. Clean financial and lifestyle separation is essential.
Practical Guidance
Yes, spouses can have different domiciles, but the risk of audit is high. To succeed, each spouse must build consistent, documented evidence of domicile. The more blurred the facts, the more likely New Jersey is to challenge the claim successfully.
Bottom Line
New Jersey offers an instructive example of how domicile disputes are evaluated: it is less about what you declare and more about what your actions and connections demonstrate. The more clearly your life is centered in your new state—and the more thoroughly you minimize ties to New Jersey—the stronger your case will be if challenged.
Overall Key Takeaways
- Moving from a high tax state to a low or no tax state may reduce tax burdens and improve lifestyle.
- Relocation is particularly impactful for retirees, business owners, and high-income earners.
- Domicile requires deliberate actions and careful documentation.
- Successful relocation integrates tax, estate, business, and lifestyle planning.
Conclusion & Call to Action
Relocating from a high tax state to a low or no tax state can provide compelling opportunities, but it is not without complexity. The tax benefits, estate planning implications, and lifestyle changes must be carefully weighed and aligned with long-term financial goals.
Before making a decision, consult with a professional advisor that has a strong focus in financial planning to evaluate whether relocation is the right move for you and your family. With proper planning, you can pursue both financial efficiency and lifestyle improvement in your new state.
If you would like more information about the terms and strategies discussed in this guide, or if you’re ready to explore how they apply to your specific situation, contact Waverly Advisors. With experience working with individuals, families, and executives managing significant wealth, we specialize in creating tailored strategies with the goal to help you grow, protect, and transfer your assets effectively.
MEET THE AUTHOR
Richard Bell CFP®
Partner, Regional Director, Wealth Advisor
Rick Bell joined Waverly Advisors in December 2024 when Planning Capital Management was acquired by Waverly Advisors, LLC. Rick joins Waverly as a Partner, Regional Director and Wealth Advisor.
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