Change in Ohio residency rules.

• Author: Wright, Michelle L.

There may be a lot more incentive to becoming a resident of a state like Florida than just the weather. While at times the weather may be enough of an incentive, the potential state tax savings can be even greater. Higher-income-tax states like Ohio have found themselves losing residents to states that have no (or low) individual income tax rates (like Florida). Ohio has reacted by changing its residency rules. The expected benefits of this change are twofold: (1) there will be greater certainty as to who is subject to tax and (2) individuals will be able to spend more time in Ohio without jeopardizing out-of-state residency; the more time spent in Ohio, the more dollars nonresidents will spend there.

Before reviewing the details of the changes, it is important to understand Ohio's individual income tax structure. It does not distinguish between residents and nonresidents the way most states do. Most states determine taxable income for resident taxpayers based on income from all sources, while nonresidents' taxable income is determined based solely on income derived from within the state. Ohio does not make such a distinction; residents and nonresidents determine Ohio taxable income in exactly the same way.

Ohio starts with Federal adjusted gross income. There may be additions, subtractions and exemptions, but the calculation is the same for both residents and nonresidents. A distinction is made in determining the credit for taxes paid to other states. Residents are only allowed a credit for the portion of their income taxed in another state, while nonresidents are allowed a credit for the portion of their income not attributable to Ohio.

Ohio Revised Code [section] 5747.01(I) defines a resident as any of the following:

1. An individual domiciled in the state;

2. An estate of a decedent who at the time of death was domiciled in the state; or

3. A trust that, in whole or in part, resides in the state.

   In determining an individual's domicile, Ohio looks to the number of contact periods that an individual has with the state. The individual must also have at least one abode outside of Ohio in order not to be domiciled in Ohio.

   A contact period occurs when an individual is away overnight from his or her abode located outside of the state and, while away, spends at least some portion (no matter how minimal) of each of two consecutive days in the state. To be considered to be away overnight, the individual must be away from his or her abode located...