The state of Washington is considering implementing a new income tax for millionaires, but it comes with some specific residency rules that taxpayers should be aware of. Essentially, if you are a resident of Washington and your taxable income exceeds $1,000,000, you will be subject to this tax. But before we dive into the residency rules, it's important to understand the term "domicile."
Your domicile is essentially your primary place of residence, the place where you live and intend to continue living. If you have a home, work, and are involved in the community in Washington, and you plan to stay there, then your domicile is likely in Washington. On the other hand, if you spend time in multiple states, your domicile will typically be the state where you have the strongest connections and roots. However, determining your domicile can be a bit fuzzy and depends on the specific circumstances.
It's important to note that being domiciled in Washington does not automatically mean you will be subject to the millionaires' tax. The statute also defines who is considered a resident for tax purposes, and in some cases, these residency rules may override your domicile.
The first residency rule to understand is the "30-day rule." This rule states that an individual is considered a resident if they are domiciled in Washington for the taxable year, unless they meet three conditions: they did not have a permanent residence in Washington at any point during the year, they had a permanent residence outside of Washington for the entire year, and they spent less than 30 days in Washington during the year. Essentially, this rule allows for a "de minimis presence" exception, meaning that if you live somewhere else, have no residence in Washington, and only spend a short amount of time there, you may not be subject to the tax.
It's important to note that nonresidents may still be subject to the millionaires' tax if they have income from Washington sources, such as rental property or a business in the state. However, they would only be taxed on that specific income, not their entire income.
For those who are not domiciled in Washington, the "183-day rule" applies. This rule states that an individual is considered a resident if they maintain a residence in Washington and spend more than 183 days in the state during the taxable year. This rule primarily affects seasonal or extended-stay visitors to Washington.
It's worth mentioning that partial days count as full days when applying both the 30-day and 183-day rules. This means that even if you were only in Washington for a short time, it could still count towards the total number of days spent in the state.
In cases where a person is classified as a resident for only part of the year, the statute provides a partial-year rule. This means that the individual will only be considered a resident for the portion of the year when they were domiciled in Washington or had a residence in the state. This prevents someone from being taxed as a resident for an entire year when their connection to Washington was only temporary.
If you're considering changing your residency or domicile in Washington, it's important to understand these rules and how they may affect your tax obligations. The proposed income tax bill for Washington also includes additional resources for understanding and changing your residency or domicile.
