Exit Tax: What Happens When I'm Moving to a New State?

Many residents are facing an unexpected exit tax as they begin their move out of state. With the loss of tax revenue (sales tax, income tax, property tax, corporate tax, payroll tax), states are resorting to audits and additional fees to balance their books.

State Exit Tax: Moving To Another State | www.deductingtherightway.com

What is an exit tax?

It's money you have to pay because you've moved to another state or country. While it may not be an additional tax, it can take on different forms.
  • Final state tax return due upfront upon leaving the jurisdiction or closing a business
  • Onetime processing fee or special assessment
  • Estimated tax payments requested before leaving the state
  • Audits to confirm that your nexus and activities in the new state meet the definition as your primary residence or headquarters
TIP: If not handled correctly, a state tax audit can lead to a hefty tax bill plus interest and penalties. Contact a licensed tax accountant to assist with your representation.

Why are states imposing an exit tax?

When states face an exodus of tax paying residents, their total tax revenue decreases and their projected budgets will no longer balance. Without the money they were counting on, they may not have enough funds to repair roads, buildings and other infrastructure, or pay for public programs.

Why are residents moving to another state?

Typically, residents leave a state when the cost of living, job opportunities, political climate, or personal preferences have changed. Another state may be more appealing because of a lower income tax, better schools, cheaper housing, warmer weather, and more jobs.

How can I avoid the state exit tax?

You should consult with a licensed tax accountant before you sell your home, liquidate your assets, or make any other moves that affect your residency status. There may be ways to minimize or reduce the effect of the exit tax.

TIP: Tax planning is especially important for snowbirds or dual-residency taxpayers.

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DISCLAIMER: Please consult with your accountant, attorney and financial advisor before implementing any information displayed on this website. DIY research does not replace the advice of a licensed professional who has thoroughly reviewed your file.