Legal Residency Requirement

I am going to be assessed with a large capital gains tax in the near future, due to a sale of a company I partially own. My wife and I are current residents in a state with a moderately high capital gains tax. While we cannot do anything about the federal tax, I think it would make sense to avoid the state taxation entirely by moving to New Hampshire in advance of the sale.

Here's the general time line associated with what we are planning to do:

1. About 3 months in advance of the sale closing, I will relocate to NH and sign a 1-year lease on a home. About 75% of our belongings will be shipped to the new residence.

2. My wife will stay behind in our current state, until such time that we sell our home. It is important to note that she has no ownership interest in the company.

3. I will register to vote in NH.

4. I will open a bank account in NH.

5. I will obtain a valid drivers license in NH.

6. I will change our mailing address to the home in NH.

7. I will obtain a local library card.

8. The balance of our belongings will be shipped to NH a week or so before closing the sale of our current residence.

9. I will return to our current state in order to attend the settlement of our existing home.

Are there any other residency requirements in NH that would fly in the face of this plan, e.g. does one need to be a resident for a particular period of time in order to legally claim NH residency? I've looked around the internet and could only find requirements of 12 months, but they were associated with state college education.

Many anxious thanks!!

I think it is your current state, not NH, that will be more interested in your residency status. Given the well organized post, you probably have thought through that.

Your scheme may not work. States have figured this all figured out, and they know how to get the first piece of the tax pie.

It works like this. If you are a non-resident of a state but still own a business in that state, the state is generally going to demand that you file a non-resident income tax return for any income generated out of that business that is located in their state. This is the first tax bite you will have.

Your second tax bite is the taxes you pay to your home state, but you can usually factor the out of state taxes you paid as a credit towards the taxes you owe to your home state, or it will at least reduce your income tax in your new state by a proportional amount. This is done so that you don't get double taxed on the same income. However, since NH does not collect personal income taxes in the first place, you are not going to get a tax credit from them.

In the end, the amount of taxes you pay as a resident or a non-resident to your current state of residence will be the same either way.

That's a good point Maxwell. States always have a way of getting their money. I would be wary of double taxation.

Maxwell50 has it right.

The state where the business is located will demand it's share of the profits generated within that state. Online Marketing will need to file a non-resident or Part Year Resident tax return.

But now as I was typing the above paragraph, I realized this is an On Line Marketing business. Where is the business located? That is a question that has not been answered by the OP.