I'm back in the office after a great ten day Thanksgiving holiday in Florida.  On the trip to the airport I read a full page ad in the Naples Sun Times suggesting high net worth individuals change their legal residency to Florida.  I read the article with great interest because some in Michigan have suggested the MBT may prompt some to change their state of residency from Michigan to Florida.

The Florida Argument

The state of Florida does not have a personal income tax and recently their intangibles tax was repealed.  In addition, a Florida resident can qualify for a special homestead exemption from the property tax on their personal residence.

The Michigan Situation

With the enactment of the Michigan Business Tax on January 1, 2008, investment income (dividends, interest, royalty income and capital gain income) will be subject to the tax if the gross receipts exceed $350,000.  The broad definition of "business income" in the Michigan Business Tax Act (MBTA)does not exclude investment activities not associated with a trade or business.  Furthermore, the definition of "person' in the MBTA includes an individual, estate, trust and a limited partnership.

Be Careful

Changing the state of residency for tax purposes is not as easy as flipping a switch.  Certainly the individual must spend substantial time in the state in addition to a voting registration, drivers license and automobile plates.  The intangible assets which produce the investment income must be managed and controlled from outside of Michigan.