Overview

Generally, the State of Illinois may tax the worldwide income of a person who is domiciled, that is, a resident of Illinois. Recently, the Illinois Department of Revenue (“IDOR”) adopted administrative rules providing clarification on factors that are considered when determining residence for income tax purposes. The rules also incorporate the holdings in an Appellate Court decision.

Once residency has been established in Illinois, it can be difficult to lose. The IDOR is getting much more aggressive in conducting residency audits. This is due, in part, to the increase in Illinois income tax rates and the available resources and tools at the IDOR auditor’s disposal. For example, auditors are “Googling” taxpayers and using commercial databases, such as Experian and Westlaw, for taxpayers who claim a change of residency from Illinois.

Although a person may have multiple residences, a person can have only one domicile.

How Domicile is Determined

Illinois domicile is a question of fact based on a person’s intent to remain in, or to return to, Illinois. Because a taxpayer’s own testimony on the matter is often considered self-serving, a person’s subjective intent is typically inferred from objective indicia.

Some Key Elements in Determining Domicile

The courts and the IDOR have looked to the following elements, among others, in determining whether a person is domiciled in Illinois. Generally, no one factor is determinative. Rather, the totality of circumstances is looked to when determining a person’s domicile.

• Moving into a home, condo, or apartment with the furniture, furnishings, and possessions that indicate an intent to make this the taxpayer’s primary residence (“near and dear” factor);

  • What is the size and value of each residence

  • What is listed on the property & casualty insurance rider for the location of treasured items

• Utility usage on residences;

• Relocation of the spouse and minor children;

  • Where do school-age children attend school

  • Family origins

• Spending more time in a new state rather than Illinois (Illinois does not use a strict “number of days” test);

  • An individual who is an Illinois resident in one year and who in the following year is present in Illinois more days than in any other state creates a rebuttable presumption of Illinois residence

• Establishing memberships in civic, religious, community organizations, and clubs in the new state and exiting from the old community;

• Location of professional licenses;

  • Employment

  • Real property

• Active business involvement and participation in decision-making and frequency of communication with a business;

• Using in-state doctors;

• Having trusts and/or wills to reflect the new state of residency;

• Transferring significant cash and securities holdings to in-state institutions, including safe deposit box;

• Using new address for primary mail delivery and continued correspondence, including credit cards, magazines, bank accounts, etc., and filing a change-of-address form with the U.S. Postal Service;

• Recording an executed homestead declaration with the county recorder;

• Registering and maintaining vehicles and other titled property;

• Obtaining a driver’s license;

• Registering to vote;

• Holding a public library card

Change of Domicile

Generally, once domicile has been established in Illinois, it remains there until the person establishes a new domicile elsewhere. Cases involving a change of domicile are frequently audited by the IDOR. These cases typically involve a taxpayer who has moved (or allegedly moved) from Illinois to a lower-tax or no-tax jurisdiction. In such cases, the taxpayer bears the burden of proof to establish that his domicile has changed from Illinois. Therefore, the issue is both:

• Establishing residency in the new state, and

• Abandoning domicile in Illinois

Auditors are typically looking for a change in lifestyle or a life-changing event, such as marriage, retirement, or a new job, rather than self-serving factors like obtaining a driver’s license or registering to vote.

Abandonment of Domicile

Generally, once a person has established domicile in Illinois, that domicile cannot be lost or abandoned until the person has established domicile in a new state. As domicile requires a permanent and fixed place of abode, a person can still be considered a resident of Illinois long after leaving Illinois if he has not yet established a new permanent residence elsewhere.

This is referred to as the “Leave and Land” concept. To change domicile, a person must not only “leave” the old home but also “land” in a new one.

For example, if a resident of Illinois terminated his residence in Illinois with the intention of never returning and spent the following several years traveling Europe, residing for a few months in each European capital, and finally returned to the United States to make a home in Florida, he would remain a domiciliary of Illinois until his new home in Florida was established.

State Inheritance and Estate Tax

It should be noted that state inheritance and estate taxes can also be affected by residency decisions. Some states have estate taxes, such as Illinois; others do not. And of course, tax rates also vary by state. While the current federal estate tax exemption is $15,000,000, state exemptions may differ. For example, the Illinois exemption is $4,000,000 and is not currently scheduled to increase.

Conclusion

Given the IDOR’s sensitivity to the residency issue and the high-profile media coverage occurring in other states, individuals considering relocating from Illinois to another state because of retirement, employment, or otherwise should be mindful of the importance of careful planning related to state residency issues.

Members of the FGMK Tax Department can assist with relocation planning and the resulting state and local tax consequences.

If you have inquiries about this article, or would like assistance obtaining a tax residency certificate, please contact:

Matt Fuller
Partner, State and Local Tax Practice
847.444.8491
MFuller@fgmk.com

The summary information in this document is being provided for education purposes only. Recipients may not rely on this summary other than for the purpose intended, and the contents should not be construed as accounting, tax, investment, or legal advice. We encourage any recipients to contact the authors for any inquiries regarding the contents. FGMK (and its related entities and partners) shall not be responsible for any loss incurred by any person that relies on this publication.