One of the trickle down effects of the two year old increase in Illinois personal and business income tax rates has been a flight from Illinois residency to lower or no tax states. When the residency rules are analyzed closely and applied as written, the flight from Illinois residency more often than not is an attempted flight from Illinois residency . This attempt results from wanting to avoid Illinois residency for tax purposes while still maintaining a substantial presence in Illinois.
In a Letter Ruling on June 27, 2013 the Illinois Department of revenue interpreted a rule that for an Illinois resident to be a Non Resident of Illinois in the following year, there is a rebuttable presumption the taxpayer remains an Illinois resident for tax purposes if the taxpayer is physically in Illinois for more days than the taxpayer is physically located in a “single other State.”
For the consequences of this determination take for example a longtime Illinois resident who decides to take up residency in Nevada or Florida where there is no state income tax. If the taxpayer comes back to Illinois to handle business matters for 160 days, one interpretation is the taxpayer does not trigger the rebuttable presumption since the taxpayer is in other states for the remaining 205 days of the year.
That is not, however, the interpretation given by IDOR in its June 27, 2013 Letter Ruling. In that ruling, IDOR takes the position that to avoid the rebuttable presumption the taxpayer must be present in a single State—Florida for example—for more days during than year than he or she was present in Illinois. If a taxpayer spent 160 days in Illinois, 100 days in Florida, and 55 days visiting family in Oregon, the presumption would apply because the taxpayer was present in Illinois more days than in any other state during the year.
A strict interpretation of the Illinois Department of Revenue opinion would seem to apply as well to foreign travel as the entire philosophy of the opinion is it requires presence in “another State”.
The consequences for those taxpayers attempting to avoid Illinois residency for tax purposes while maintain a substantial physical presence are clear. On the other hand, we are talking about a “rebuttable presumption” which by definition can be rebutted by other evidence.
For more information on the possible ramifications of this ruling to your particular tax situation, please contact us.