This post originally appeared at https://www.badgerinstitute.org/another-reason-governor-to-cut-those-top-tax-rates/

Mobile Wisconsinites can establish residency in Florida or elsewhere – and minimize their tax bill – more rapidly than many believe

Thanks partly to the fact Minnesota is the one state between the coasts with even higher individual income tax rates than Wisconsin, and the fact that Illinois is a general mess, Wisconsin had a net gain of slightly more than 500 people from other states in 2020.

Exclude those two neighbors and we lose about 10,000 people annually to everywhere else – many of them no doubt in love with our state but disdainful of our exceedingly high taxes. Far and away, most of them go to Florida, then Arizona and Texas. But we also lose lots of people to cooler places, such as Colorado or Washington, with lower or no individual income taxes.

More than one former Wisconsinite has told me over the years that to be considered a resident of another state – and be exempt from paying Wisconsin’s high taxes without completely abandoning your family and friends back home – you have to spend six months and a day there.

Turns out that’s not true.

“Don’t believe what you heard at a cocktail party,” said Wyon Wiegratz, an attorney who is of counsel with Remley Law in the Fox Valley but became a resident of Florida a couple years ago and spends a lot of time down there. He happened to be back here in the Badger State for a funeral when I reached him by phone but was already planning to head back to Bonita Springs.

States like Florida want you. They will generally accept you as a resident almost immediately although they might take a close look if they think you’re trying to inappropriately claim, for instance, a homestead credit.

Florida, says, Wiegratz, “will take anybody. They will love to have you down there because you pay sales taxes.” 

States like Wisconsin that are losing long-time residents – and tax revenue – are the sticklers. 

Some states, according to Wiegratz, do have a six-month-and-a-day requirement that requires transplants to spend that much time elsewhere  before they are off the tax hook back home. Not Wisconsin. 

“Wisconsin does not require you live outside of Wisconsin for over half of the year to change residency, nor does the state of Florida require you live there for over half of the year to be considered a resident,” Wiegratz wrote in an article that I read before I called him. “Yet it is best if you can show to have been in Florida as a resident for some substantial period each year.”

Bottom line, if you’re willing to jump through a lot of hoops, changing residency from Wisconsin to another state can legally be accomplished more quickly than six months. Just how quickly depends on the individual case. There is no time-specific rule.

That’s not to say the Department of Revenue makes it easy to leave. You can’t just rent a U-Haul, pack up the dog and the toaster and close the checkbook. You have to prove to the Department of Revenue that you’re changing your “domicile.” 

“It’s not a matter of getting a certificate from somebody,” said Wiegratz. “It’s a process.” 

A “domicile” is a “true, fixed, and permanent home where a person intends to remain permanently and indefinitely and to which a person has the intention of returning, whenever absent,” according to the DOR. Any one person can have only one domicile at a time, and the term refers to a lot more than a physical structure.

Your domicile, according to the Department of Revenue, “depends on many things, including where you live, where you vote, where you register your vehicles and where you own or rent property.”

According to the DOR, a person’s domicile, once established, is never changed unless the person specifically intends to abandon their old domicile and acquire a new one – and can prove it.  

The department uses a Legal Residence (Domicile) Questionnaire with dozens of questions.  

Among them: On what date did you move from Wisconsin? When you moved, did you intend to move back? When were you physically present in your new state? Did your spouse or dependent children move to the new state? On what date did you begin working in your new state? 

There are questions about whether you’re registered to vote in the new state, whether you purchased a home, secured a driver’s license, registered a vehicle or performed services for income. There are questions about whether you send your kids to schools in Wisconsin, have a Wisconsin hunting or fishing license, or own real estate here. There are questions about auto insurance and wills and union membership. But not one that directly asks you if you spend more than six months elsewhere. 

All this gets complicated pretty quickly. It is very possible to be domiciled in Wisconsin for part of a year and then in Florida or another state for the remainder of the year or vice-versa. For these “part-year residents,” according to the DOR, Wisconsin will tax your income from all sources during the time you are a Wisconsin resident. During the time you aren’t a Wisconsin resident, Wisconsin taxes only your income from Wisconsin sources. 

Even non-residents – those not domiciled in Wisconsin for any part of the year – can be taxed if they have income from Wisconsin sources. An example used by the DOR: “You were a Florida resident for the entire year. You spent four months during 2021 at your cottage in northern Wisconsin. During your summer stay in Wisconsin, you worked part-time at a local gift shop. The income you earned from this part-time job is taxable by Wisconsin.”

There is a lot of motivation to move. Wisconsin’s top individual income tax rate is 7.65%. Its second highest rate, which kicks in for singles filers at $25,520, is 5.30%. Twenty-five states have a lower top rate than our second highest rate. 

Florida is not nirvana in all respects. State and local sales taxes are over 7%, much higher than Wisconsin’s.  Real estate costs are high and so, for instance, are things like real estate transfer fees. But the complete absence of individual income taxes is an enormous draw. From 2019 to 2020 alone, Wisconsin lost a net of 3,667 people on 1,864 returns with a total adjusted gross income of $405 million and total assets, I would guess, in the billions. That’s just one year. 

The Wisconsin Department of Revenue is mum on just how many staffers actively pursue people who have moved.  

Asked how many DOR employees research or try to disprove the statements made by individuals filling out the Legal Residence (Domicile) Questionnaire, the DOR communications office replied only that “the number of employees performing audits/reviews varies.”  

Asked whether DOR employees in any instance travel to other states to determine whether somebody actually is a resident of that place rather than Wisconsin, they replied that “it depends on the circumstances. We will travel if necessary.”

Wisconsin “can come back at you after a couple years and say ‘No, we don’t think you have done all these things,’” said Wiegratz. But generally, he said, Wisconsin is not as aggressive as many other states. 

The last thing Wisconsin needs is more tax collectors or bureaucrats chasing down people in Florida who legitimately and understandably have chosen to change their residency in order to avoid onerous taxes in the Badger State.  

It would be so much easier to just cut taxes here and eliminate much of the motivation Wisconsinites have to flee south in the first place.

Mike Nichols is the president of the Badger Institute. Permission to reprint is granted as long as the author and Badger Institute are properly cited.

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