USA Trends and Developments Contributed by: Rebecca O’Toole, Julie Sirlin Pleshivoy and William Keenen, Greenberg Traurig, LLP
ated with those moves. Florida alone has experienced tens of billions of dollars of net adjusted gross income inflows attributable to interstate migration. These movements matter because high income taxpayers often account for a disproportionate share of state tax collections. As affluent individuals relocate, states gain or lose not only current tax revenue, but also the future economic activity associated with those tax - payers and their assets. Interstate competition for wealth As high net worth individuals and families become more mobile, states themselves have begun compet - ing for that mobility. For individuals and families, juris - dictions such as Florida, Texas, Nevada, Wyoming and Tennessee continue to attract new residents through combinations of favourable tax treatment, business- friendly environments and desirable lifestyles. The ability to reduce state tax exposure while maintaining a high quality of life has made these jurisdictions par - ticularly attractive destinations for wealthy taxpayers. Trust planning often involves a separate jurisdictional analysis. The jurisdiction that is most attractive for a family is not necessarily the jurisdiction that is most attractive for a trust. Jurisdictions such as Nevada, South Dakota, Delaware, Wyoming and Alaska have become leading trust jurisdictions through combina - tions of favourable trust laws, directed-trust regimes, asset-protection statutes, modern fiduciary structures and sophisticated fiduciary industries. These juris - dictions have made a deliberate business of attract - ing trust administration and wealth planning activ - ity through less burdensome trust laws, specialised courts and experienced trust companies. Consequently, modern wealth planning regularly involves two distinct jurisdictional decisions: where the family will live and where the family’s trusts will be administered. Those decisions often point to differ - ent jurisdictions. For example, a family may choose to reside in Texas or Florida, while administering its trusts in South Dakota or Alaska. The ongoing cycle of taxation and mobility As jurisdictions adopt more expansive approaches to taxing income and wealth, taxpayers and their advis - ers more frequently reassess where they live, where
their trusts are administered, who serves as fiduci - ary and how assets are structured. Those decisions can affect the tax base a state was seeking to reach and may influence future legislative, regulatory and enforcement efforts. Trust planning provides a useful example. When a state asserts taxing authority based on trustee residence, place of administration or beneficiary connections, families often respond by changing trustees, moving trust administration or relocating fiduciary functions to another jurisdiction. States may then react by refin - ing nexus standards, expanding the circumstances under which they claim taxing authority, or increasing scrutiny of trust structures designed to reduce state- tax exposure. Similar dynamics arise in domicile planning. As states increase taxes on high income taxpayers and accu - mulated wealth, some taxpayers respond by relocat - ing to lower-tax jurisdictions or restructuring owner - ship and fiduciary arrangements. States, in turn, may devote additional resources to residency audits, trust taxation and enforcement efforts designed to preserve their tax base. Tax policy influences taxpayer behaviour, and taxpay - er behaviour often shapes future tax policy. States respond. Taxpayers respond. The cycle continues. Constitutional limits on state wealth taxation The ongoing cycle between tax policy and taxpayer mobility does not occur without limits. Constitutional principles continue to require a meaningful connection between the taxpayer, the taxed activity and the taxing jurisdiction. Those requirements may become more important as states explore wealth taxes, expanded nexus theories and other measures directed at con - centrated capital. The constitutional issues are particularly significant where taxpayers, trusts, assets or business interests maintain connections to multiple jurisdictions. While states possess broad taxing authority, that authority is not unlimited. Courts have consistently required a sufficient jurisdictional relationship between the state and the income, assets or activities being taxed.
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