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If a person lives in any given state for less than 4 months each year, can they avoid paying state income taxes?

Is there a federal law that requires a citizen to be a resident of a particular state? Is so, what is that law?

As a variation on the above, is it possible to avoid state taxes by living temporarily in an untaxed location, like the Virgin Islands? For example, lets say a person lives for 5 months in one state, 5 months in another, and 2 months in the Virgin Islands. Can they then declare the Virgin Islands as their primary residence for tax purposes?

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  • I'm not a specialist, but I think you have to pay taxes in the state where you earn the money. It doesn't matter where you live (or everyone would have his 'home address' in the Caymans)
    – Aganju
    May 18, 2016 at 21:17
  • @Aganju Assume a retired person living off of investments.
    – Five Bagger
    May 18, 2016 at 21:18
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    @Aganju IIRC, that depends on the state. Many states with state income tax only tax "residents." Some states, like New York, want a piece of all income earned in the state regardless of residency. You would have to look at each state's income tax laws very carefully to determine who is expected to file.
    – quid
    May 18, 2016 at 22:33
  • You could simply establish your residence in a state, such as Nevada, that doesn't have a state income tax.
    – jamesqf
    May 20, 2016 at 7:01

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I don't believe you can avoid it altogether, but you could claim residency in a state that doesn't have state income tax, such as Florida or Texas (there are others). There are several resources online for full-time RVers that discuss this. According to those resources, you do have to declare a state as your state of residence, complete with driver's license and vehicle registration, but that's about it.

Unless you're fully off the grid, living on cash, I think you have to have an address somewhere. Might not be a Federal law about it, but in order to do pretty much anything (insurance, banking, investments, driving, etc.) you have to provide an address.

Where Do Most Fulltime RVers Live?

choosing-your-rv-home-baseAfter doing some serious searching on the Internet, the best information I could find leads me to believe that the 2 top-ranking states, as far as the general population of full time RVers go, are:

1 Texas

2 South Dakota

Florida was also mentioned, though I didn’t find anything about Wyoming or Nevada.

Texas came out on top mostly due to the Escapees RV Club which is headquartered in Livingston, TX. They have better then 15,000 members who declare Texas as home, yet many spend little or no time in the state. The Escapees even go so far as to have a Become a Texan Manual on the Internet that gives you all the information you need to establish your domicile in Texas. They can even do your mail forwarding for you.

https://rv-roadtrips.thefuntimesguide.com/2008/06/best_tax_state_for_fulltime_rv.php

Also see this question regarding working overseas: Do Americans working overseas pay state taxes?

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Each state defines residency on their own. While Colorado says you are a resident when you get a job in CO or live in the state for 90 consecutive days; Ohio says you are when you establish a domicile, or if you spend 7 months (just changed last year from 6 months) of nights in Ohio (called contact periods).

That is when you will be taxed in that state. If you have investment income over a year, you would declare when you changed states and prorate the income. Or, if you have gains/losses on a specific date you would have to figure out (and provide documentation, IMO) which state was 'home' and which got the tax.

So, to answer your question assuming you live off investments only - you would be subject to income tax in each state you lived in based on when the income was earned or a portion of it for non-date-specific income.

Situations like this are very common for snowbirds - folks who head south (many to Florida) in the winter to warmer weather and return to the northern state in spring/summer. Most of these people will claim Florida as their home state of residency, avoiding state income taxes entirely in the northern state.

This is not a black and white situation when challenged - states are keen on this and will expect you to have a FL license, vote in FL, and not be in your northern/income-tax state for more than (usually, varies by state) 183 nights. I've heard of auditors asking for documentation to prove where you were and when you entered/exited the state - which is very difficult to fake (keeping in mind that a tax audit does not have the burden of proof a court has).

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If you earn a salary, you are subject to paying income taxes in both the states where you reside (your mailing address) and where you work. For example, my FIL for many years commuted across state lines, and payed income taxes in both states.

I don't know how formal this agreement was, but he only payed the higher of the two tax rates in total, and I forget which state got "first bite".

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