NC, nonresident or part year resident?

[joanmcq]

Client's company transferred him from Florida, from where he was telecommuting to MA to NC office in April of 2007. He is physically working in NC. However, he doesn't plan on staying there (hates company and company is laying off right and left anyways). Owns home in FL, wife stayed in FL, has jury duty in FL, votes in FL, driver's license is FL, returns to FL on weekends and whenever possible. Plans on being back in FL for good by the end of 2008. NC presumes residency if you are in NC for more than 183 days 'in the abscence of factual proof of residency in another state'.

Is he a nonresident or a part year resident of NC? We know we will pay taxes on NC income but how do I file? (thank god they did away with the MFS deal this year!)

[JohnH]

Nonresident

It think he is a non-resident with NC source income for the income earned in NC only. If his W-2 doesn't break out the NC amount, you can attach a computation schedule. As long as it looks reasonable given the facts & circumstances, it's been my experience that NC will accept it. (Probably because they are grateful to receive a voluntary filing of that type, especially from someone residing in a state with no income tax).

You're right about the old MFS rules - glad they did away with that mess. He can simply file MFS even though his spouse was not a resdient and had no NC source income. (Several years ago we had a pastor who lived in SC but the church was in NC. His wife didn't work outside the home, so we would pay her a few hundred dollars a year for performing some coordinating work at the church just to enable the NC filing to be MFJ)

Anyhow, the NC D-400 will walk you right through all the calculations once you get the Line 49 & 50 entries calculated. Also, remember thatif the T/P has any credits (i.e. child credit, child care credit, contributions credt) he is entitled to a pro-rata portion of those against his NC income.

[erchess]

NC Has List of Factors

pointing to Residency. I always have to call DOR when this comes up because I can never find the list but they always direct me to a page on the website. I assume you have that list. The official story is that they weigh all the factors and try to reach a reasonable assessment. What I run into is that if there are 183 days between your first coming to NC and your final departure or the end of the year (never mind the absences) they at least try to argue to a state judge that you should be taxed in NC on all your income. They also tend to want to ignore time spent in states like Florida that have no State Income Tax. They know that most people cannot afford to litigate the issue and that even if you do litigate you are not going to get a judgment against them. In fairness to the men and women of the DOR they are behaving as the Legislature and the Governor have instructed them to. Also to be fair to DOR there are a great many high wealth individuals who split time between Florida and NC and who seek to spend the maximum amount of time they can here without owing income tax to NC.

I am editing this because I just saw John's post. All I can say is that his experience with NCDOR is different from mine. I have the impression that he has me beat on both years and returns per year so I certainly want to respect that point of view. I also was assuming that OP meant that time in NC not counting weekends in Florida was 183 days and on that assumption I find NR hard to see. I know of one case where a guy who did not spend the night in NC bought a small prize wining lottery ticket here and NC wanted to tax him on it. DOR's unofficial bottom line seems to me to be that they want to tax all NC source income especially if there is no other state that intends to tax that income.

[joanmcq]

There is no doubt that he has NC source income; it's on his W-2 and we are filing on it. There is actually no difference in tax between filing as a PY resident and NR; the only additional income besides a state tax refund is $26 of interest. I don't want to establish a precedent if he did have more income in the future that is florida source in 2008 like interest, dividends or pension that would be taxed in NC if he was a resident vs florida if an NR. This isn't the case in 2007, but I don't want to just blindly say, hey there's no difference in tax so I'll pick resident, and have it potentially come back to bite me next year. The complete saga is this: in Jan 2006 he and his wife moved to FL from MA and he started telecommuting to his job in MA. In 2007 his company set up an IT center in NC and moved him there, but he doesn't plan on staying in NC and did not move his wife or permanent residence and is planning on either finding another job or he thinks he will be laid off. Apparently the big IT center is a bust and layoffs have started already.

[JohnH]

Toss-up

Erchess pointed out a number of thinkgs I overlooked in my initial response. However, given the situation I'd still file him as a non-resident because I think you can establish there was never "intent" to become an NC resident. As long as the tax is paid and there isn't a substantial difference either way, you've taken care of 2007 and as you say you've avoided the "precedent" issue. If NC disagrees, they know how to contact your client.

Sounds like your most likely problem would be 2008 if he leaves the state for good and tries to allocate based on residence in a non-income-tax state. Again, a properly prepared W-2 will help him tremendously. I've seen this situation with airline employees living in TN, but fortunately there is a ruling on that classification of employee. WIth your client, you will probably just wind up warning him that there could be an adverse finding by NC if he atracts their attention. Sometimes we just have to settle for the adminition that "We will have to jump off that bridge when we get to it."

[joanmcq]

Yeah, because he is definitely planning on going back to FL for good. They dont have a lot of investment income, so I don't really see a problem, but you never know when someone will cash out a 401(k) without telling you in advance so you can say, 'don't cash it till you move back to florida!'