DEFINITION of 'Domicile'
A domicile is a person's primary residence for tax purposes, and it is established, in part, via a driver's license, voter registration and bank accounts. It may also be the address of record for credit cards and other bills. Although most people do, it is not necessary that people live in their listed domiciles.
BREAKING DOWN 'Domicile'
Some taxpayers in upper income brackets change their official domicile to avoid paying high taxes. In 2012, Facebook co-founder Eduardo Saverin drew just such suspicion when he renounced his United States citizenship immediately prior to Facebook's IPO. Saverin established a home in Singapore that has no capital gains tax. This resulted in a significant tax break for Saverin because the long-term capital gains tax for Americans with incomes equivalent to Saverin's is a minimum of 15%.
Reasons Domicile Is Important
In addition to affecting federal and state taxes, domicile impacts legal issues ranging from divorce to probate matters. For example, in some states, estate beneficiaries must pay a state tax on the assets of the estate. Since not all states have an estate tax, survivors can retain more of their inheritance if the decedent was domiciled in a non taxation state. Probate must also be initiated in the deceased individual's state and county of domicile. To remove ambiguity, many wills contain a specific statement about the decedent's domicile.
Divorce laws vary from state to state. While some states look at domicile to determine whether the state has jurisdiction, others look at residency, which may be determined by the number of days per year an individual spends in the state. If domicile is used to establish jurisdiction, it affects child support and visitation issues, as well as property division. In cases of contested child custody, parents may argue over domicile as each attempts to have the case heard in the state that is most favorable to his or her side.
Domicile may also determine school attendance boundaries, eligibility for homestead exemptions and other issues. Either residency or domicile may be used to determine tuition rates for in-state and out-of-state students at universities, depending on the state's policy.
Factors That Determine Domicile
Determining domicile can be a complicated issue when taxpayers have multiple homes in different jurisdictions. Regardless of how many homes a person owns, only one can be categorized as the domicile. This is the place where the resident intends to return, no matter where he travels or how long he stays away. Although the homeowner might spend the majority of his time in other locations, the intent to make a specific location his permanent residence is a key factor in establishing domicile.
In situations involving contested domicile, several factors can be helpful. Tax returns listing the permanent address are important evidence, along with auto, home and life insurance policies. Getting a driver's license in a particular state is another indication of intent to establish domicile.