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by Doug Warren, JD

 

In 2021, Illinois reported the largest outmigration of residents of any state, and Illinois has now marked eight consecutive years of population decline. Many of the persons leaving indicate they are moving to a more affordable location.

Perhaps you have considered doing the same. Or maybe you have a second home in another state with less (or no!) income tax liability, and you have wondered how you might go about changing your residency to this state. The article will explain how Illinois determines residency (particularly for income tax purposes), and then outline how an Illinois resident may go about changing their residency to a different state.

 

Residency in the Illinois Income Tax Act

Residency Defined

Illinois imposes income tax on every individual who is a resident of this State.[1] An individual is an Illinois resident if (1) they are in Illinois for other than a temporary or transitory purpose during the taxable year or (2) they are domiciled in Illinois but are absent for a temporary or transitory purpose during the taxable year.[2]

First, an Illinois resident is someone in this state for other than a temporary or transitory purpose. Obviously, a vacationer or businessperson staying in Illinois for a week is not a resident – they are only here temporarily. For a stay NOT to be temporary or transitory, a longer, indefinite period is required, likely coupled with no definite intention to leave Illinois. Those persons will be considered residents of Illinois.

Second, an Illinois resident is ‘domiciled’ in this State, and only absent for a temporary or transitory purpose. The Illinois Administrative Code defines domicile as, "the place where an individual has his or her true, fixed, permanent home … the place to which he or she intends to return wherever absent."[3] It should be noted you can only have one domicile at a time. Of course, in our transient society, domicile is not as clear as it used to be. There are a number of ‘snowbirds’ from Illinois that spend a good deal of the winter in another state – which they may even call ‘home.’ For these snowbirds to claim they are domiciled in another state will require looking at the facts and circumstances of each case.

Presumptions of Illinois Residency

It should also be noted here that in Illinois, two certain sets of facts create a presumption of residence: (1) receiving a homestead exemption for Illinois property; or (2) an individual who is an Illinois resident in one year is presumed to be a resident in the following year if they are present in Illinois more days than in any other state.[4]

 

Changing Residency to Another State

Given the above, if you are currently a resident of Illinois, there are two steps that need to be taken in order to relinquish this residency and establish residency in another state:

Overcome Presumptions of Illinois Residency

First, you must take steps to overcome the presumptions of Illinois residency as outlined above. If you own an Illinois home, you must remove your Illinois homestead exemption. Second, you must pass the ‘time test’ (at least in the first year when changing residency away from Illinois) – you must be physically present in one state more days than you will be physically present in Illinois.

Establish Domicile in Another State

In addition to overcoming the presumptions of Illinois residency listed above, documentary evidence is needed to support a claim of residency/domicile in another state. Thankfully, the Illinois Administrative Code contains a very helpful list[5] of the documentary evidence that is relevant to establishing residency:

  • Location of your spouse and dependent children
  • Voter registration
  • Vehicle registrations and driver's license
  • Filing income tax return in another state
  • Home ownership or rental agreements
  • Work assignments
  • Location of professional licenses
  • Location of medical professionals and other healthcare providers
  • CPAs / attorneys
  • Club or organizational memberships
  • Telephone / utility usage

In short, the more ‘ties’ you have to a particular state, the more likely you would be considered to be domiciled in that state (and less likely that Illinois would be able to successfully argue you are still an Illinois resident).

 

Conclusion

We live in an increasingly-mobile society and second-home ownership is increasingly common. Residency is not always clear cut. And while we certainly are not advocating persons to flee Illinois, we understand there can be strong tax-savings incentives to do so. Making an informed decision on these matters is always best.

If you have additional questions or would like to discuss further, please do not hesitate to contact your relationship manager.

 

 

[1] 35 ILCS 5/201(a).

[2] 35 ILCS 5/1501(a)(20).

[3] Ill. Admin. Code tit. 86 § 100.320(d) (2013).

[4] Ill. Admin. Code tit. 86 § 100.320(f) (2013).

[5] Ill. Admin. Code tit. 86 § 100.320(g)(1) (2013).