Don Grady is a CPA and Professor of Accounting at National Louis University, Chicago
I recently attended a conference sponsored by the Illinois Society of Certified Public Accountants that provided an update on State and Local taxes. One of the topics I found very interesting was a change in one of the Illinois tax administrative codes that defines “residency” for tax purposes.
Prior to April 2013, the Illinois code presumed you were a resident of Illinois if you lived in Illinois for more than nine months of the year. Or, if you were absent for a year or more you were presumed to not be a resident. For years, these presumptions were contested in courts by taxpayers with a variety of scenarios.
Well, what is the basic issue? The tax base for residents of Illinois is all income and deductions whether it is Illinois-sourced or not. Non-residents are only taxed on income and deduction items allocable to Illinois. This not only pertains to income taxes, but also estate taxes.
Effective April, 2013, the Illinois administrative code was changed to require clear and convincing evidence of residency. Two key factors were used to add clarity. First, if an individual is receiving a homestead exemption on their Illinois property, they are presumed an Illinois resident. Second, if the number of days present in Illinois exceeds the number of days present in any other state, they are presumed an Illinois resident.
We know a number of Sun City neighbors with property in other states, like Florida or Arizona, as well as here. Some have moved to the other state but still have property here that they use to return for visits while others have rented out there property here. What is their intended state of residency?
States like Florida and Arizona no longer have estate taxes, while Illinois does. At the conference, we reviewed a number of historical court cases that required extensive evidence to support the taxpayer’s intention. To prove residency, taxpayers presented information that identified the location of their spouse and dependents/relatives, their voter registration, automobile registration, driver’s license, other state tax returns, proof of property ownership or rental agreements, location of professional licenses, location of physicians, other healthcare providers, attorneys, accountants, and club or organizational memberships.
Additionally, they presented logs or records that tracked the number of days they were present in given locations. If you have property in Illinois but want to change your residency to another state, don’t forget to cancel the homestead exemption on the Illinois property. That clearly indicates that you are not residing at the property. Save yourself some taxes and declare your intentions of residency.
• Send in your questions and ideas to: Sun Day, Frugal Forum Column, P.O. Box 761, Huntley, IL 60142, or, by email to: thefrugalforum@gmail.com.
