Don’t ask me what I want it for If you don’t want to pay some more1
Future Illinois Income Tax Increases
On May 27, 2019, the Illinois House of Representatives approved an amendment to the Illinois Income Tax Act (“Amendment”) replacing the current flat tax with a progressive income tax. Passage of the amendment was central to Governor JB Pritzker’s campaign promise to raise income tax rates for Illinois income taxpayers above certain income levels. The Illinois Senate had previously approved the proposal on May 1. The Amendment cannot take effect without amending the Revenue Act of the Illinois Constitution. The Amendment will appear as a referendum on the November 2020 ballot. If more than 60% of Illinois voters approve the Amendment, the progressive income tax rates will take effect January 1, 2021.2
With the prospect of increased Illinois income taxes of up to 7.99% on high income taxpayers,3 in tandem with some of the highest property taxes in the nation and an Illinois Estate Tax, a number of high-income taxpayers will be asking: How do I get out? If they choose to leave, they will join a growing exodus of Illinois taxpayers that have moved to other states, primarily Florida.4 This article examines the legal issues that surround an Illinois resident’s desire to change his or her residency, while also maintaining contacts with Illinois. Because Florida is the preferred state of residency for many Illinoisans,5 we will focus on changing residency to Florida.
Who is an Illinois Resident?
If a taxpayer is an Illinois resident, they will remain so until taking affirmative steps to change residency. Illinois law defines an Illinois resident as follows:
…[a]n individual who is in Illinois for other than a temporary or transitory purpose during the taxable year or who is domiciled in Illinois but is absent from Illinois for a temporary or transitory purpose during the taxable year.6
For an Illinois resident moving to Florida who continues to reside in Illinois for part of the year, the focus will be on whether the individual is “domiciled” in Illinois. Illinois Department of Revenue Regulations define “domicile” as follows:
Domicile has been defined as the place where an individual has his or her true, fixed, permanent home and principal establishment, the place to which he or she intends to return whenever absent. It is the place in which an individual has voluntarily fixed the habitation of himself or herself and family, not for a mere special or limited purpose, but with the present intention of making a permanent home, until some unexpected event shall occur to induce adoption of some other permanent home. Another definition of “domicile” consistent with this is the place where an individual has fixed his or her habitation and has a permanent residence without any present intention of permanently moving. An individual can at any one time have but one domicile. If an individual has acquired a domicile at one place, he or she retains that domicile until he or she acquires another elsewhere.7
The Regulations do not provide a bright line test for determining whether an Illinois resident has changed his or her domicile. Phrases like “present intention” and “permanently moving” are fact-specific and invite litigation. Illinois courts have provided some clarity on the issue of domicile.
Cain v. Hamer.8
Cain v. Hamer (“Cain”) is a leading case that illuminates the balancing act a court will perform in determining whether an Illinois resident has changed his or her domicile to Florida. In November 1995, the Cains, husband and wife, executed and filed Florida “declaration of domicile” indicating change of domicile from Illinois to Florida and renouncing Illinois residency. The Cains obtained Florida drivers licenses, voter registration, Florida burial plots, and developed professional and medical relationships with Florida professionals. In August 2006, the Illinois Department of Revenue (“IDOR”) sent the Cains a notice of tax deficiency asserting that the Cains owed $1,842,582 in unpaid income tax, penalties and interest for the years 1996-2004.9 The Cains submitted payment under protest and filed a complaint seeking a declaration that they were not Illinois residents during the audit period. After considering cross motions for summary judgment, the circuit court ruled that the Cains were mere “seasonal visitors” not residents of Illinois.10 IDOR appealed the circuit court decision.
On appeal, the appellate court reviewed the circuit court decision de novo.11 The appellate court initially cited the Illinois Income Tax Act and corresponding regulations addressing “residency” and “domicile.” The appellate court noted that the most challenging aspect of the case was that the Cains split their time roughly equally between Florida and Illinois.12 For the entire period under audit, the Cains split their time as follows: 1,700 days in Florida, 1,666 in Illinois and 284 elsewhere.13
Because the Cains split their time nearly equally between Florida and Illinois, the court noted that, “…in some sense [the Cains] have maintained an intent to return to both Illinois and Florida for approximately half of their time throughout the relevant [audit] period.”14 Because a resident cannot intend to return to both states, the court relied upon the concept of domicile as an intended permanent home.15 Despite the fact that the Cains maintained contacts, memberships and real estate holdings in Illinois, the court noted that they changed their voter registration to Florida, paid Florid income taxes, obtained residency cards and driver’s licenses in Florida, and filed declaration of Florida residency. This was sufficient for the court to conclude that they wished to establish Florida as their permanent residence in 1995, even though they planned to keep ties in Illinois and have regular seasonal visits.16
Cain should provide some comfort for Illinoisans that plan to become Florida residents but want to continue spending some part of the year in Illinois. It is also clear from the fact-specific nature of Cain and the court’s careful balancing of factors, that the Cains narrowly escaped a significant Illinois tax liability. As a consequence, for those Illinoisans who wish to become Florida residents by moving to a condo in Naples while retaining the townhome in Hinsdale, they should take a number of “affirmative steps” to support their change of domicile to Florida.
Prudent Steps to Follow to Support Change of Domicile
The First few steps are critical: creating documentary evidence to establish Florida domicile. These steps include the following:
Documenting Abandonment of Illinois Domicile
While the affirmative steps establishing Florida domicile are critical, equally important are the steps the individual should take showing he or she has abandoned Illinois domicile. These include principally the below:
Changing to Florida Domicile as the Center of Affairs
Perhaps the most challenging aspect of becoming a Florida resident is changing the center of affairs from Illinois to Florida. This is also an area that will trip up many taxpayers even if they have followed the other procedural requirements outlined above because they may not be able to comply with these best practices without disrupting family or social ties. A list of the primary steps that individuals should take are as follows:
First and most obvious spend as much time as possible in the Florida home – at least six months. Reside in the Florida home.
Have holidays with family at the Florida home. The more family activities in Florida with Florida residents in the family, the stronger the indicator that Florida is one’s domicile. Purchase a burial plot in Florida.
Move as much property as possible to Florida, especially property that may be considered near and dear to one’s heart, and secure a Florida safe deposit box to store valuable items and important documents. Open bank and financial accounts in Florida.
Join social clubs in Florida and be active in those clubs. Maintain friends in Florida. Purchase memberships or season tickets to theaters, sports teams, museums, and other local performance-related activities in Florida.
Vote in Florida, in person. Donate to political campaigns for Florida’s state and local offices. Attend and donate to religious organizations in Florida. Volunteer with Florida organizations and charities, and donate to them.
Obtain a healthcare provider in Florida.
If still actively working, work as much time as possible in Florida. Establish a principal place of business in Florida.
As Cain illustrates, a person’s subjective intent determines domicile for legal purposes. However, tax authorities place great weight on the above checklist items. Remember, for those taxpayers who do not plan their exit carefully, Illinois and its taxing authorities will be vigilant about welcoming them “home.”
Kenneth W. Clingen thanks CCM intern Grace Turner for her assistance in the preparation of this article.
1. “Taxman”, The Beatles, Revolver, Parlophone, 1966.
2. IL Const Art XIV; Amendment to Revenue Act Limitations on Taxation.
3. Proposed New Income Taxes for Joint Filers:
|4.9%||$10,000 - $100,000|
|4.95%||$100,000 - $250,000|
|7.75%||$250,000 - $500,000|
|7.85%||$500,000 - $1 million|
4. Migration: How Many Walks. https://www.howmoneywalks.com/irs-tax-migration.
6. IL Comp. Stat. Ann. 5/1501(a)(20) (West 2012).
7. IL Admin. Code Tit. 86 §100.3020(b) (2013).
8. 2012 IL App (1st) 112833, 975 N.E. 2d 321.
9. Id. 975 N.E. 2d at 2.
10. Id. 975 N.E. 2d at 3.
11. Id. 1 975 N.E. 2d at 4.
12. Id. 975 N.E. 2d at 5.
13. Id. 975 N.E. 2d at 7.
14. Id. 975 N.E. 2d at 8.
15. Id. 975 N.E. 2d at 8.
16. Id. 975 N.E. 2d at 9.
17. Fla. Stat. §222.17 (2019).Ken W. Clingen is the managing partner of Clingen Callow & McLean, LLC, and chairs the firm’s business counseling department. His practice areas include Mergers and Acquisitions, Tax, and Succession Planning. He is licensed to practice in Illinois and Florida. Ken received his JD from Notre Dame Law School and is also a CPA.