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Other States Challenging Wealthy Taxpayers Who Claim Fla. Residency

By June Fletcher, Naples Daily News, Fla.
McClatchy-Tribune Information Services

April 06--NAPLES -- Cold and snow aren't the only reason hordes of people want to become Florida residents.

Escalating taxes in other states are driving them to the welcoming arms of the low-tax Sunshine State, too.

But people who are well-off, or only part-time residents, are often shocked to discover that just because they consider themselves Florida residents, their former states disagree.

And in many cases, these states are going after residents they think should still be paying their taxes. And the states are winning.

National Basketball Association referee Ken Mauer Jr. discovered that last year when the Minnesota Supreme Court ruled against his claims of Florida residence in 2003 and 2004, after a dispute that lasted more than a decade.

According to the court, St. Paul native Mauer bought a townhouse in Fort Myers on July 1, 2003. That same day, he obtained a Florida driver's license and registered to vote in the state. Later that year, he made a declaration of domicile in the state and filed for a homestead exemption. And he asked a Florida-based tax consultant to help him with Florida tax issues.

But travel logs he kept showed that he was not in Florida for the requisite six months and a day, the court found. The fact that he held on to a 10,600-square-foot home he'd built in Afton, Minn., used a Minnesota bank account, and kept three out of his four cars in the state, were among the signs the court pointed to when it said he didn't prove he really became a Florida resident.

Mauer, 58, declined to discuss the specifics of his case on his attorney's advice, which has cost him thousands in back taxes, interest and legal fees. But he did speak of the emotional toll.

"It's been horrible for my wife and me," he said. "I wouldn't wish this on anyone."

Despite the risk of an audit, or worse, more wealthy people than ever before are trying to establish residency in Florida because of its indisputable tax benefits, Naples wealth manager Soren Christensen said.

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RELATED: Take the Minnesota test. See what the state does to determine where a person's true residency is -- in Minnesota or Florida

He's seen double the number of clients looking to become Florida residents than he did last year, all trying to escape rising tax burdens in their home states

"One of the first questions clients ask us is should they domicile in Florida," he said. "And frankly, they'd be crazy not to."

Florida is undeniably attractive from a tax standpoint. In terms of having a favorable tax climate, it ranks first in the nation for individual income tax; sixth for unemployment insurance tax, 13th for corporate tax; 16th for property tax and 18th for sales tax, according to the Tax Foundation's 2014 State Business Tax Climate Index.

Overall, it ranks fifth as the best state to live and do business from a tax standpoint, the foundation found, after Wyoming, South Dakota, Nevada and Alaska.

Conversely, the foundation found the heaviest tax burdens are generally in northern states, including New York, New Jersey, Rhode Island, Vermont and Connecticut, and Maryland, as well as some Midwestern ones like Minnesota and Wisconsin.

That's led to some high-profile defections, including the well-publicized departure of billionaire philanthropist and Paychex founder Tom Golisano, who moved to Florida from New York in 2009. He now lives in Naples.

The move saved him $5 million a year in taxes, he wrote at the time in an essay in the Niagara Falls Reporter about why he made the move.

"I love New York," he wrote. "But how much should it cost to call New York home?"

Tax expert Larry Parker, a Naples enrolled agent, said he's seen many more clients who are seeking advice about how to become a Florida resident without running afoul of their old state's rules -- a process sometimes referred to as "Floridizing."

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"It will continue to go on as long as northern states try to make up for shortfalls in their budgets from the recession," he predicted.

The flight from high-tax states is one reason why Southwest Florida's population is booming, financial experts say. Collier's population increased 5.6 percent to 339,642 in 2013 from 2010, according to the U.S. Census Bureau. Over the same period, Lee's went up 6.8 percent to 661,115. By comparison, the population of the nation overall increased just 2.4 percent.

Minnesotans in particular are relocating to Florida to escape a "very aggressive" tax hike, said David Legis, a vice president and wealth management consultant at USBank in Naples.

Among other provisions, Minnesota adds a fourth tier income tax rate of 9.85 percent on individuals with more than $150,000 in taxable income, and married joint filers with more than $250,000 of taxable income. It also imposes a state-level gift tax subjecting lifetime gifts of more than $1 million to a flat 10 percent tax.

To retain high-income taxpayers, Minnesota applies a test of 26 factors, including where fishing and hunting licenses are registered.

But tests in other states may vary, ranging from the obvious, like where bank statements are mailed, to the obscure, like where safe deposit boxes are kept.

For those who make the effort, like Jack and Bette Keller, the rewards are worth it.

The couple, who had been vacationing in the area since 2002, decided a few years ago to make the move permanent.

So they sold their Pennsylvania heating oil business and bought a place in Fort Myers, where they live seven months of the year.

And though they still own a home in Pottsville, Pa., they made sure all of their official records, affiliations and other proofs of residency are based here.

Jack Keller, 70, said that by paying attention to these details, he hasn't had any trouble with Pennsylvania taxing authorities.

"It's saved us thousands in taxes," he said.

Users of our mobile and tablet apps can participate and see the results of an online poll here.

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(c)2014 the Naples Daily News (Naples, Fla.)

Visit the Naples Daily News (Naples, Fla.) at www.naplesnews.com

Distributed by MCT Information Services

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