New York, New Jersey and Connecticut, as well as other high income tax states, are more likely than not going to see a migration of highly taxed individuals out of their states due to the federal changes to individual income tax. As noted by the Wall Street Journal article, "New Jersey's Tax Gift to Florida," not only is New Jersey's individual income tax marginal rate just enacted the fourth highest, but it has lost $11.9 billion of income between 2012 and 2016. In fact, Market Watch lists New Jersey, New York and Connecticut as the three most tax-burdened states.

Clearly these highly-taxed states will continue to see those who can move (likely high-net-worth individuals) leave. However, the question will be whether the states will let them go.

Over the years, state taxing authorities have become even more diligent on pursuing those who move. One only needs to read the New York Division of Tax Appeals decision for CEO Gregory Blatt, who moved from New York to Texas (a state with no income tax). Having filed New York State Nonresident and Part-Year Resident Income Tax Returns for 2009 and 2010, New York State's Department of Taxation virtually immediately set up an audit of Mr. Blatt's income tax returns in September 2011 and found him to be liable for $430,065 of income taxes, plus interest and penalties, by June 2013. Instead of acquiescing on that determination, Mr. Blatt pursued an appeal before the Division of Tax Appeals. Finally, on Feb. 2, 2017, he was victorious. What was the determining factor? It was moving his dog to Dallas in November 2009.

Domicile is defined as the place which an individual intends to be their permanent home. Unlike the concept of residency, an individual can only have one domicile at a time. A change in a taxpayer's domicile involves two important elements that must both be satisfied: 1) actual change of residence and 2) abandonment of the former residence. It is important to note that the taxpayer bears the burden of proving a change in domicile out of New York and the evidence must be "clear and convincing." Unlike New York's statutory test for residency, merely showing that you were not present in the state for over 183 days does not indicate a change in domicile. The test is more subjective in nature and relies on various factors. New York State lists five primary factors when determining domicile: Home, Active Business Involvement, Time, Items Near and Dear, and Family Connections.

In her analysis, New York's Administrative Law Judge placed great importance on the location of Mr. Blatt's rescue dog since it was considered "near and dear" to the taxpayer. Mr. Blatt testified about the difficulty surrounding the decision to move the dog due to her advanced age and size, coupled with the extreme heat and humidity of Dallas. An email written by the taxpayer in October 2009 stated, "Dog is the final step that I haven't been able to come to grips with until now." The judge agreed with the taxpayer, and saw moving of the dog as the last step in Mr. Blatt's relocation to Dallas. A change in domicile to Dallas was determined to be as of November of 2009.

Both New York State and City have some of the most aggressive residency audit programs in the country. With a combined top individual tax rate at almost 13 percent, significant amounts of tax revenue can be generated by auditing taxpayers leaving the state. Surely, New Jersey and Connecticut will join the fray.

The subjective nature of the domicile test coupled with the burden of proof placed on the taxpayer makes changing one's domicile an onerous process. It is important to remember that rarely will one factor solely determine whether a change in domicile is made. Thus, it is important to take all the steps that are within your control—such as the location of your pet—to truly abandon your former residence and successfully change your domicile. Remember in this case, a dog showed how quickly it can go from being man's best friend to a taxpayer's best friend.