tax-law jurisdiction multiple-jurisdiction
What authority does a US state use to tax former residents?
<p>Some US states such as California and New York go to great lengths to keep former residents part of their tax base. As an example, New York continues to consider an individual to be domiciled in NY until and unless that individual establishes a permanent domicile elsewhere.</p>

<p>And (with few exceptions) if New York considers you to be domiciled in NY, you are considered a resident and must pay state tax on your worldwide income. This is distinct from individuals who have to pay state tax on NY source income.</p>

<p>Bottom line: if New York considers you a resident, you must pay state taxes on worldwide income, even if you did not set foot in NY or in any way have a connection to NY during the tax year.</p>

<p>Example: John Q. Smith lives in NY and pays taxes for five years. For all of 2015 he is outside of NY and couch surfs around the US without establishing a permanent domicile. He does not return to NY after 2015. New York considers him to still be domiciled in NY for 2015 and therefore he must pay NY state tax on all of his worldwide income for 2015.</p>

<p>Smith objects and faces off with New York in court. The first question would be what court(s) would have jurisdiction. New York would love it to be heard in state court and just cite their state tax law as their authority to tax Smith. And Smith wants it to be heard in federal court, but can't sue the state due to the Eleventh Amendment. So is that it, end of ballgame for Smith? The case is heard in NY, New York state law is the authority cited, Smith gets a state judgement against him and he has no way to appeal it outside of the state's jurisdiction?</p>

<p>And the second question, assuming somehow the case gets to federal court or another state's court: Smith argues he had no connection to New York during 2015 and shouldn't have to pay New York state taxes. New York state counters his argument with: "We have the authority to tax John Q. Smith under the legal theory __________________________". What would that legal theory be? Has this been tested in court?</p>

<p>Please do not give practical answers or workarounds that would short-circuit the process before they get to court. This is a hypothetical question on legal theory, not an actual case I'm trying to resolve.</p>

<p>On a certain level, it doesn't really matter which court hears the case, because New York's imposition of tax on a potential nonresident is a question of due process.</p>

<p>If he lands in a New York state court, he still raises the same constitutional challenge. If it is successful, it doesn't matter what the state law says. Even if the state court just says, "Suck it; you're in New York so you pay according to New York law," he of course still has the opportunity to appeal that judgment to the U.S. Supreme Court once he's exhausted his appeals in state court.</p>

<p>On the second question, the basic idea is that you can't be a citizen of the United States without being a citizen of one of those states (or D.C., Puerto Rico, etc.). We determine which state you're a citizen of based on domicile, so until a New York citizen sets up somewhere other than New York, he's stuck with New York citizenship. This concept is fundamental to a lot of different areas of law, and New York's approach is not at all unique.</p>

<p>I don't have a case to cite to at the moment, but this has definitely been tested in court. The general principle is well accepted, though there are certainly occasions where states are brushed back for interpreting it too aggressively.</p>
