New Utah Law Regarding Domicile Starts in 2012

Utah imposes an income tax on all of the income of its residents, and upon Utah-sourced income of non-residents.  Intangible income such as interest, dividends, and capital gains on the sale of stock are taxed in the state of residency.  A resident is a person who is either domiciled in Utah or is a statutory resident because the person maintains a place of abode in Utah and has spent more than 182 days in Utah during the calendar year.  Domicile means the location of your permanent home, where you intend to return after being away.  A domicile is not changed to another state unless three conditions are met:  1) you have a specific intention to abandon your current domicile, 2) you establish an actual physical presence in the new domicile, and 3) you intend to remain in the new domicile permanently.  When a person changes their domicile, they will be a part-year Utah resident through the date of the move out of state.

Individuals who may have a large capital gain from the sale of an intangible, such as shares of stock, may try and avoid Utah tax on the gain by moving their residence to another state that does not impose an income tax, such as Nevada, Wyoming, or Texas.  If they are able to successfully change their residence to such a state before selling their stock, they can save Utah tax of 5% of the gain.  Obviously the gain would need to be very substantial to warrant the financial and personal costs of moving.

Utah has enacted a new law that takes effect on January 1, 2012.  The law sets forth some "bright-line" tests for determining whether an individual has a Utah domicile.  The following is a selected list of factors to avoid if you are claiming to no longer be a Utah resident.

1. You or your spouse are claiming resident tuition as a student attending a public university in Utah,
2. You have a dependent who is claimed on your personal federal income tax return who is enrolled in a public kindergarten, elementary, or secondary school in Utah,
3. You or your spouse claim the 45% primary residence exemption from real estate tax on a home in Utah,
4. You or your spouse are registered to vote in Utah,
5. You or your spouse have a Utah driver's license,
6. You or your spouse have a vehicle registered in Utah,
7. The nature and quality of your living accommodations in Utah are superior to those in the other state, and
8. You or your spouse have claimed to be a Utah resident on an income tax return or on a document filed with or provided to a court or other governmental entity.

Other rules and factors apply.  The new law is found in the Utah Code at 59-10-136.