Among the wealthy tri-state-area set, there’s more buzz than ever about fleeing south to Florida, land of mild winters and, more importantly after last year’s federal tax overhaul, zero state personal income tax.
Actual action? Pretty scarce.
High-earners are learning what tax experts have known for years: Tax collectors in states like New York make it really hard to leave. Wealth managers and tax lawyers say many of their clients are staying put after hearing about the scrupulous records they would have to keep to show they’ve really uprooted their lives and severed ties with their former states — and that it’s not as easy as just spending a few more days a month in a Florida vacation home.
(Related: 12 Best States for Retirement: 2018)
Like other high-tax states, New York’s Department of Taxation and Finance will go to great lengths to keep wealthy residents on their tax lists. The states’ methods can be aggressive: Issuing subpoenas to pore through credit card statements, bank transactions or phone records to track a taxpayer’s location, and sending auditors to interview doormen or confirm doctors’ appointments.
“When people understand they have to change their life circumstances, some people say: ‘Never mind, that’s too big a life change for us to do right now”’ said Timothy Noonan, a partner at law firm Hodgson Russ LLP, who’s based in Buffalo and Manhattan.
Lloyd Abramowitz, a wealth manager who works with clients who live in New York City and Greenwich, Connecticut, says fewer than 10 percent of clients who express an interest in moving are actually going through with it. He said he typically counsels people making around $500,000 in taxable income a year not to uproot themselves just for tax reasons. Even above that level, family considerations and ties to community have to be taken into account, he said.
It isn’t easy to measure, but one early indicator shows no evidence of a mass exodus. In the past 12 months through May, the number of net change-of-address forms filed with the U.S. Postal Service for people moving to Florida from New York, New Jersey and Connecticut has actually declined slightly from recent highs.
Of course that data doesn’t account for movement among certain groups, like the ultra-rich, for whom the tax savings may just be too great to ignore. In recent years, hedge fund titans including David Tepper, Paul Tudor Jones and Eddie Lampert have moved to Florida. This year, some money managers are planning to relocate as Miami and Palm Beach officials ramp up their advertising efforts following the new $10,000 limit on state and local tax deductions.
Overall, more than 10 percent of New Jersey residents will see a tax hike this year — in California, it’s 8.6 percent, while 8.3 percent of New Yorkers will see higher levies, according to a study from the Tax Policy Center.
Four northeastern states most affected — New York, New Jersey, Connecticut and Maryland — sued the Trump administration last week to invalidate the cap, saying it unfairly targets them. Years of litigation are likely to ensue, but some legal experts have said the states’ arguments are dubious.