Coastal states wrestle with complex residency rules to tax wealthy newcomers
States such as California, New York and Washington are trying to raise revenue through wealth-related taxes, but proving a billionaire’s true domicile is proving to be a costly and cumbersome task.
Facing shrinking budgets, states including California, New York, Washington, Hawaii and others are turning to wealth-tax proposals to shore up finances, but the effort is hampered by the difficulty of confirming a taxpayer’s true residence. California’s ballot measure would levy a one-time 5% tax on the net worth of its richest citizens, while New York is considering an annual levy on high-value secondary homes, and Washington plans a 9.9% tax on income exceeding $1 million starting in 2028.
Experts explain that determining domicile involves assessing where a person’s permanent home lies, how much time they spend in the state, and where their family and assets are concentrated. The legal burden differs by jurisdiction: California requires the taxpayer to prove a move, Washington must demonstrate a false non-resident claim, and New York uses a five-factor test. Wealthy individuals often own multiple properties and can challenge the taxes, potentially relocating to states without such levies, which would further diminish the targeted revenue streams.
Why it matters
State attempts to tax the ultra-wealthy hinge on complex residency rules, affecting future public finances and taxpayer mobility.
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