What is your domicile? What is your legal home? Is it that easy to move to Florida or Texas and state taxes?

What is your domicile? What is your legal home? Is it that easy to move to Florida or Texas and state taxes?

The basic rule for residency (which may be different in your state) is that you have a principal place of abode in a state and it is your domicile. You could also meet a state's statutory resident rules. None of this matters much if the income is sourced to a different - high tax - state entirely.

Moving before a business sale starts with those questions. It does not end there.

We have to answer three separate questions. Where is the owner domiciled? Where is the owner a statutory resident? And where is the income sourced?

Domicile is the place you consider your permanent home - in your head and through your actions. A state does not prove your domicile with a definition. It proves it with an audit that demonstrates your real bona-fide intent.

What do you need to show in an audit?

Do you own a home in the new state? Are you registered to vote? Where is your car registered? But also, did you actually vote? Where is your dog's vet? Where are your doctors? What about your hair salon?

An audit is based on evidence and therefore can dig into a lot of detail of a person's activities. No single checklist item establishes a move. Your former home, family, business involvement and actual living arrangements all matter under the applicable state's rules.

Statutory residence is a separate test. A person can establish a new domicile and still be taxed as a resident of the old state under its residence rules.

There is no universal 183-day rule. The day count, what counts as a day, and the permanent-place-of-abode requirements differ by state. The owner's records need to establish the days under the rule that actually applies.

Then ask where the income comes from.

An actual move does not move the business assets. A nonresident can still owe tax on income sourced to the state where the business operates.

That makes the transaction structure important. An agreement may be called an Equity Purchase Agreement while the transaction is treated as an asset sale for tax purposes. The equity of what - the S corporation, or the LLC underneath it?

Stock, partnership interests and business assets can have different sourcing rules. The tax structure may be different from the legal structure. Apply the relevant state's allocation and apportionment rules; do not assume every dollar follows the owner's new address. Residence taxation and available credits also need to be considered.

Pre-LOI tax structuring is critical for sellers. Your best leverage as a seller is at the LOI stage and you give away economics through bad tax structuring when you start tax planning as you negotiate a contract.

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