Something strange is happening in Manhattan. My neighbours are yanking their tent-poles out of Park Avenue concrete and planting them amid the alligator swamps in the income-tax-free state of Florida. “People are fleeing New York like never before,” tweeted President Trump, who recently shifted his principal residence from New York to the Sunshine State. “If they own a business, they’re twice as likely to flee.”
On this, he is not wrong. These days, the tax haven tango is all the rage. Gliding in and out of states or countries to their multiple homes, often on private aircraft, the rich scrupulously count days to avoid spending too much time in one place. I witness people weighing the value of a social or business event to avoid triggering taxes they’d rather not pay.
One executive explains the trend by pointing to the tripartite fear of a Warren presidency, a stock market correction and rising inequality. And Trump’s 2017 legislation has had perhaps the most impact, dramatically reducing state and local tax deductions. “The party is over,” the executive told me. “They want to be at the after-party in Palm Beach with their insular gang and are showing up now to do so.”
But it’s not as simple as it might sound. You cannot merely buy a little condo in Palm Beach and spend fewer days in your Manhattan co-op to avoid New York state and local income taxes. A Fred Astaire/Ginger Rogers two-step is required to prove a true domicile shift to the fearsome tax authorities.
I own a small condo in Florida where I spend at least four months a year accompanying my child athlete on a semi-professional circuit. It got me thinking: if I kept my New York home, how much would a move to the Florida condo save on my New York income taxes, which include salary, dividends, and capital gains?
I called my accountant, but I told him not to tell anyone I’d asked, because even researching how to change my domicile in a manner that looked proper to the authorities made me nervous. I don’t understand why being a participant in this kind of tax obfuscation doesn’t make more of my friends anxious. Not to mention queasy about not paying their fair share for road repair or firemen’s salaries or services to the 43 per cent of New Yorkers living near the poverty line. Just asking the damn question on the phone made me feel like the character at the border in Midnight Express.
The shenanigans necessary for me to create a fact pattern that could pass an audit were, frankly, insane. The New York authorities, apparently the scariest tax agents out there, would insist I alter everything that I get out of my beloved Manhattan and everything I try to give back to it.
I’d have to cancel all local New York charge accounts (even Leonard’s, my superb fish market, which delivers in half an hour), move anything “near and dear” out of New York, including sentimental photographs, art, and family heirlooms. I would have to resign all New York club memberships and charity boards I sit on, cancel my season tickets to the Knicks basketball team that my son and I have enjoyed for 15 years, and find new Florida doctors and dentists for my family. When I heard that I’d even have to change the veterinarian for my ailing King Charles spaniel, I knew this would be one dance I’d be sitting out.
One New York girlfriend recently spent a week by herself serving in a Vero Beach jury as an early step in the “we-do-actually-live-in-Florida” case she and her husband intend to present to authorities. She’s even getting a public library card that she has zero intention of using.
The Internal Revenue Service agents sniff out the tax avoiders like frenzied basset hounds chasing a rabbit down a hole. They study credit card payments and mobile phone calls and can track the actual hours a person has spent in Manhattan. (People trying to spend time in Connecticut are careful not to drive near the western border of Greenwich, because the phone towers often erroneously mark them as being in New York.)
Many people spend the night in the W Hotel in Hoboken, New Jersey, a 20-minute jaunt over the Hudson River. But if your actual out-of-New-York-state hours don’t add up to a full day, the IRS agents won’t let you count it as one. Turns out you’d be using all that bad hotel shampoo for nothing.
For business people liquidating a large number of stocks or selling a company they’ve grown for years, the decision to uproot their lives can make sense, so dizzying are the gains. But my question is this: do wealthy New Yorkers, addicted to the magical pulse of the city, actually want to leave their palatial Park Avenue pads for the pink-and-green kaleidoscope of Palm Beach? Sure, there’s opera down there, but it’s hardly the Met and this season’s Akhnaten. “Don’t let the tax tail wag the dog,” advises Paul Comeau, senior partner at Hodgson Russ LLP, to clients contemplating such a move. “If you’re going to change your life so it’s no longer as fun as it was just to save taxes, then don’t do that.”
One social maven I know has been studying the optics of the super-rich tax shuffle and has come up with her own theory. “Sometimes, moving to Florida is a very bad look. It says you don’t have enough cash to live where you want. Forget the fancy status symbols: being rich enough to stay in New York and pay all the taxes is the new way to show off.”
