It all started with the Tax Cuts and Jobs Act (TCJA). This monumental piece of tax reform led to changes that impacted every taxpayer in the country in some way. One of the biggest hits for high tax states with the limitation on the State and Local Tax (SALT) deduction on federal tax returns. With a much more limited SALT deduction, high tax states like New York found themselves concerned residents would relocate to a lower tax state in an effort to reduce their tax obligations.
It turns out their concerns were warranted. Residents began to relocate. New Yorkers packed up their bags and reestablished themselves in lower tax states like Florida. Internal Revenue Service (IRS) data from 2016, during the final negotiations of the TCJA, shows that New York lost about $8 billion in adjust gross income from the exodus. The trend continues. The New York state comptroller reports the state has experienced a year-over-year decline in tax revenues of $7.9 billion as of April 2020.
This dramatic drop in tax revenue led New York tax officials to scrutinize taxpayers’ claims. Had they really relocated, or were they just claiming to relocate so they would not have to pay New York state taxes? Tax investigators dug into the taxpayers’ particulars, questioning things like where they kept items that were of emotional significance or where they scheduled doctor’s appointments.
These investigations were relatively common before the current coronavirus pandemic. Now, add in a virus that has crippled the economy and you have state’s that are struggling to fill their coffers. Will this trigger renewed attempts to pull in taxes from New Yorkers that have moved to Florida?
Florida Senator Rick Scott believes it will. He recently stated he will do his best to help New Yorkers who have chosen to leave the state and establish residency in Florida fight against these claims. As a result, taxpayers may see a spike in New York state tax audits. Those who are the subject of such an audit are wise to seek legal counsel. The attorneys with Goldburd McCone are experienced in these matters and can advocate for the taxpayers’ interests throughout the process.