Nevada: A Tax Friendly State

There are many individuals and businesses who are motivated to relocate to Nevada by the fact that Nevada does not impose a state income tax.

The benefits to an individuals who live in Nevada and become a Nevada resident will usually escape state taxation of their income, except for income arising from sources within another state.  A corporation organized and domiciled in Nevada could significantly reduce its state tax burden.  States generally tax corporate business income based on the corporation’s level of activity within and outside that State.  So when you shift part of the corporation’s business to Nevada it will reduce the state tax.  This will also eliminate state taxation of corporation’s non-business income if the corporation is organized and domiciled in Nevada.

Trusts with Nevada fiduciaries can gain a significant tax advantage as well.  With a Nevada fiduciary, non- California source income, distributed to non-California beneficiaries or retained and taxable in the trust, will escape California taxation.

The single, most important prerequisite for a taxpayer to take advantage of Nevada’s “tax hospitality” is domiciling one’s self in the state.  It must be his primary home and his principle place of residency. Once has to pass the “close connection test”, identifying Nevada as the state which they have the closet ties during the taxable year.

Various factors are considered in determining whether a taxpayer has close ties with a particular state.  Here are a few to consider.Where you are physically present. Where you have sources of income. Where you are registered to vote. Where you own a home. Where you claim the homeowner’s exemption. Where you driver’s license is issued. Where your closest business contacts are, i.e. Attorneys, accountants, banks etc. Where your closest social contacts are, including clubs.  Where your vehicles are registered. re Where your minor children attend school, and whether you paid resident or non-resident  tuition.  Which state has jurisdiction in the administration of your will and trusts.  Where you obtained a homestead exemption.  Where you maintain a safety deposit box. Where you filed an affidavit of domicile. Where you own a cemetery plot.

While no factor by itself can positively determine residency, registering to vote or claiming the homeowner’s exemption in California, for example, has been found to  make the taxpayer a California resident, regardless of the other factors.  For more information regarding the above, one should always contact a specialist in Nevada Tax laws.