State Residency Tax Planning for High-Net-Worth Individuals

With more states introducing millionaire taxes and capital gains regimes, taxpayers are increasingly asking how (and when) they can change their state tax residency.

If you’re considering a move, or even spending meaningful time in multiple states, it’s worth revisiting how residency is determined and what that could mean for your future tax liability.

State Tax Changes Impacting Residency Planning

States like Washington and California are driving many recent conversations around residency and planning.

Washington, historically known for having no individual income tax, is layering in new taxes that directly impact high earners—including a 9.9% tax on income above $1 million starting in 2028 and an expanded capital gains tax. While these changes represent a significant shift in Washington’s tax landscape—and will likely face legal challenges—they are already influencing how taxpayers evaluate residency and future planning decisions.

California, of course, continues to impose some of the highest individual income tax rates in the country, reaching up to 13.3% with no preferential treatment for capital gains.

At the same time, proposals targeting high-wealth individuals continue to gain attention, including a high-profile billionaire tax initiative currently under consideration.

The Proposed California Wealth Tax Is Far Higher than 5 Percent – Jared Walczak, Tax Foundation:

The 2026 Billionaire Tax Act, a California ballot initiative, would ostensibly impose a one-time tax of 5 percent on the net worth of the state’s billionaires. Due, however, to aggressive design choices and possible drafting errors, the actual rate on taxpayers’ net worth could be dramatically higher.

As a result, we are seeing more high-net-worth individuals taking a closer look at where they live—and more importantly, where they plan to recognize significant income.

Tax Residency Rules: It’s Not Just Where You Live

One of the biggest misconceptions is that residency is determined solely by where you claim to live. In reality, states apply a facts-and-circumstances analysis that looks at a range of factors, including:

Time spent in a state (often tied to a 183-day threshold)
Ownership of a permanent place of abode
Location of family, business activity, and personal ties
Evidence of intent (your domicile)

Owning multiple homes can make this even more complex. Simply purchasing a home in a no-tax state doesn’t necessarily sever ties with a higher-tax state—and maintaining access to a residence elsewhere can trigger statutory residency rules.

As states expand taxes on high-income individuals, they also have a greater incentive to challenge residency positions—particularly when large transactions are involved. This can lead to dual residency exposure and state residency audits.

Residency Myths vs. Reality

Here are some of the most common misconceptions we see in state residency audits:

Myth	Reality
“I own homes in multiple states, so I can choose which one is my residence.”	Owning multiple homes can actually increase audit risk. Maintaining a residence in a high-tax state may trigger statutory residency, even if you consider another state your “primary” home.
“I changed my driver’s license and registered my cars—that’s enough.”	Administrative changes help, but they are rarely determinative. States look beyond paperwork to your overall facts and circumstances.
“I registered to vote in my new state, so I’ve changed my domicile.”	Voter registration is just one factor. It must align with your actions, lifestyle, and intent to permanently live in the new state.
“If I spend some time in each state, I’ll be fine.”	Time matters—but so does access to a residence. Spending significant time in a state where you maintain a home can create dual residency exposure.

Tax Residency Planning Before a Business Sale

These issues become more impactful when a large income event is on the horizon—like the sale of a business.

States are increasingly focused on moves that occur right before a major liquidity event, and residency changes tied to those transactions often receive heightened scrutiny.

If a sale is within a 3–5 year timeframe, proactive planning is critical:

Establishing and documenting a change in domicile early
Evaluating how different states tax business sales and capital gains
Aligning personal, financial, and business ties with your intended state

Waiting until the year of the sale is often too late.

Final Thoughts

Residency planning isn’t about reacting—it’s about being intentional early. As states continue to evolve their tax regimes, understanding how residency rules apply to your situation can help avoid costly surprises down the road.

We’ll be covering this topic in more detail in an upcoming webinar, including a deeper dive into Washington and California developments and what they mean for high-income taxpayers.

Frequently Asked Questions (FAQs) on Residency:

How many days can I spend in a state before they may consider me a resident?

It depends. Many states use a 183-day threshold as a starting point, but that’s not the only factor. States also look at things like whether you maintain a home in the state, your prior residency, and your overall ties and intent. Simply staying under a certain number of days does not automatically prevent you from being treated as a resident.

Can I be a resident in two states?

Absolutely. This is where many taxpayers create audit risk. It’s common for individuals to establish residency in a new state but fail to fully abandon their prior domicile. As a result, both states may treat the taxpayer as a resident—potentially subjecting them to tax on the same income.

What happens if the state audits my residency status?

If you receive a residency audit, it’s important to approach it carefully. Responding too quickly or providing incomplete information can sometimes complicate the situation. Before submitting documents or engaging directly with the state, it’s often best to work with an advisor who understands the process and can help manage the response strategically.