Fleeing Minnesota State Taxes Come with Risks

Published On: 22nd October 2013

From the internet

This year, wealthy Minnesotans saw a vote by the legislature to raise their taxes, which raised the possibility that some of those individuals may want to move to states with lower taxes.

This year consisted of two decisions by the Minnesota Supreme Court to spell out what it means for a person to establish legal residency in another state. It is not something that is a matter of buying a residence.

Attorneys in the Minneapolis area have been questioned regarding their opinions on whether or not the increasing tax on higher-earning Minnesotans will force them to leave. Some believe it is too early to tell since the changes are rather recent. However, Connecticut conducted a study in 2008 that showed that increasing taxes can result in outward migration.

In Minnesota, the revenue department uses a number of factors to establish what makes a person a resident and what doesn’t. There are a total of 26 factors that they weigh to determine whether or not a person’s income is taxable. The factors that they weigh include having bank accounts in Minnesota, personally guaranteeing business debts, conferring with business managers, having a home or business within the state, using professional services, receiving medical care, and keeping a car registered in Minnesota.

There were some residents in 2013 who challenged the state’s determination that they were residents because they were living in Florida. One taxpayer purchased a townhouse in Florida and even obtained a Florida driver’s license. He would leave Florida to return to Minnesota and his pay was direct deposited into a Minnesota bank account. In the end, he spent half of his time in Minnesota and it was determined that he was a resident.

In another case, the Minnesota Supreme court determined that a taxpayer owned more land in Minnesota than he did in the state where he was claiming residency.

These rules make it difficult for individuals to establish a resident elsewhere in order to avoid paying taxes. It is not enough to purchase a home in another state and reside there half the year. The court cases that have taken place this year suggest that there must be a more definitive break with Minnesota in order to show that residency has truly changed.

As for whether or not the more affluent businessmen and women will leave the state because of this, it is still too early to tell. Minnesota does have a great number of assets that entrepreneurs find appealing. The assumption is that the state will be hampered in its efforts to continue attracting entrepreneurs and businesses if the state government continues adding and increasing taxes. As of now, a non-resident must weigh Minnesota income tax, the Minnesota gift tax, estate tax, and the consequences of investing in a small business that owns the equipment used in its trade. Many weigh the pros and cons of starting a business in the state and the last legislative session added more factors that have to be weighed upon a business locating within and adding jobs in Minnesota.

Source: http://www.startribune.com/business/224628661.html