Domicile Income Tax

The Statutory Resident’s Dilemma

We have all been counting the days since March 16, 2020 when life as normal stopped and our year of COVID-19 began. However, I am not counting days just because I long to belly up to a bar again. The longer this goes on, the more people seeking refuge from COVID-19 away from home will find themselves paying state income taxes in places they did not plan to, sometimes even paying tax twice on the same income.

In Connecticut, residents pay income tax on all of their income, which is sometimes reduced by a credit for taxes paid to other jurisdictions. There are two types of residents: those domiciled here, and so-called statutory residents. Domicile is the place which an individual intends to be his or her permanent home and to which or he or she intends to return whenever absent. Subject to certain narrow exceptions, if one is domiciled in Connecticut, then one pays tax here.

However, the definition of statutory resident has me counting days. A statutory resident is any individual not domiciled here, who maintains a “permanent place of abode” here (a place you own, a place you rent, somewhere generous friends or family give you unfettered access to, etc.), and who spends more than 183 days of the year here, unless you’re here in Connecticut due to being in the US armed forces.

If you have stayed at your place in Connecticut more this year, perhaps due to COVID-19 and perhaps since March 16th, you may be a resident on September 15.

This is the simplest way of reaching the 183 day count. When considering whether you are a statutory resident a day here includes any part of a day, except for a part of a day during which you merely transit through the state. This means a trip to Connecticut from New York counts as a day in each state, but a road trip from New York to Rhode Island through Connecticut would not count as a day in Connecticut.

So what if you are a statutory resident of Connecticut? Who cares?

You might.

You may find yourself paying tax on the same income twice, in Connecticut and in your state of domicile, potentially without offsetting tax credits. Connecticut is not unique in this regard. Many states have similar rules putting countless individuals at risk of double taxation this year.

By Robert L. Day III