For individuals who have relocated to Puerto Rico under Act 60, establishing and maintaining bona fide residency is essential to securing the program’s tax benefits. A key component of this process is passing the Presence Test, which ensures that an individual is spending a sufficient number of days in Puerto Rico while avoiding tax residency status in other jurisdictions, particularly high-tax states like New York and California.
The presence test requires meticulous record-keeping, as both New York and California employ aggressive residency audits that scrutinize an individual’s day count, ties to the jurisdiction, and intent to establish Puerto Rico as their primary home. This newsletter will break down the differences between New York and California’s residency tests and provide key strategies for Act 60 participants to build a strong case for Puerto Rican residency in case of an audit.
New York’s Residency Criteria: Strict Day Counting & Extensive Scrutiny
New York applies one of the strictest residency tests in the country, often subjecting high-income individuals to audits if they claim to have moved to a lower-tax jurisdiction. The state considers an individual a statutory resident if they:
- Spend more than 183 days in New York in a calendar year (any part of a day counts as a full day, even a layover or a short visit).
- Maintain a permanent place of abode (PPA) in New York for substantially all of the year, even if they claim to live elsewhere.
New York residency audits are known for being highly invasive, and auditors will meticulously examine personal and financial records to verify the taxpayer’s physical presence and intent to sever residency. Key factors New York auditors analyze include:
- Credit card transactions – Purchases made in New York can indicate physical presence.
- Flight records and cell phone data – Travel logs and GPS data can reveal if someone was in New York on a given day.
- Medical records – Doctor visits in New York count as days spent in the state.
- Social media posts – Digital footprints (such as Instagram check-ins) can contradict residency claims.
- Mail and package deliveries – Frequent deliveries to a New York address raise red flags.
- Gym memberships, club affiliations, and lifestyle factors – Indicators of ongoing ties to the state.
California’s Residency Criteria: More Subjective, Based on Intent and Ties
Unlike New York’s day-counting approach, California determines residency using a broader “facts and circumstances” test. The nine-month presumption states that spending over nine months in California in a calendar year creates a presumption of residency, but even those spending fewer days can still be considered residents if they have significant ties to the state.
California auditors consider subjective factors when evaluating whether an individual remains a resident, including:
- Primary home – Owning or renting a home in California vs. Puerto Rico.
- Family presence – Where a taxpayer’s spouse and children reside.
- Business interests – Employment, company ownership, and board memberships in California.
- Community ties – Memberships in country clubs, religious organizations, and social groups.
- Driver’s license, voter registration, and mailing address – Indicators of where an individual considers their “home.”
California’s residency audits can be lengthy and burdensome, often spanning years. The burden of proof is on the taxpayer to demonstrate that they have truly relocated to Puerto Rico.
Key Strategies for Act 60 Participants to Strengthen Their Puerto Rico Residency
To avoid an audit—or successfully defend one—Act 60 participants must take proactive steps to substantiate their Puerto Rican residency and minimize ties to their former state. Here’s how:
1. Maintain Meticulous Travel & Presence Records
- Keep a detailed log of all travel, including boarding passes, flight itineraries, hotel stays, and travel receipts.
- Consider using GPS tracking apps or an electronic presence tracker to log your physical presence in Puerto Rico.
- Be mindful of unintended travel days—a single layover in New York can count as a full day for tax purposes.
2. Establish Strong Ties to Puerto Rico
- Purchase or lease a primary residence in Puerto Rico and avoid maintaining a permanent home elsewhere.
- Obtain a Puerto Rico driver’s license and register to vote in Puerto Rico.
- Open and actively use Puerto Rican bank accounts.
- File Puerto Rico tax returns as a bona fide resident.
- Enroll children in local schools if applicable.
3. Sever Ties to Former State
- Sell or rent out real estate in high-tax states like New York or California.
- Resign from clubs, gym memberships, and professional organizations based in your former state.
- Change mailing addresses for all financial accounts, insurance policies, and medical providers to Puerto Rico.
4. Be Cautious with Digital Footprints
- Avoid social media activity that contradicts residency claims (e.g., posting about spending time in New York or California).
- Ensure online orders and deliveries are sent to your Puerto Rico address.
5. Understand the 183-Day Rule and Other Presence Tests
To qualify as a bona fide Puerto Rico resident, an individual must meet one of several presence tests, including:
- Spending at least 183 days in Puerto Rico in the tax year.
- Spending more time in Puerto Rico than in any other jurisdiction.
- Not spending more than 90 days in the U.S..
- Earning less than $3,000 in active income from U.S. sources and spending no significant time in the U.S.
Meeting these tests does not guarantee immunity from an audit, but it significantly strengthens your case if challenged.
Final Thoughts: Be Proactive, Not Reactive
New York and California have become increasingly aggressive in challenging tax relocations, especially among high-income earners who claim Puerto Rican residency under Act 60. Their residency audits can be complex, lengthy, and costly, requiring individuals to provide extensive documentation to defend their position.
Act 60 participants should adopt a proactive strategy—not only meeting the legal requirements of Puerto Rico residency but also ensuring they have the paper trail and lifestyle evidence to support their claims. By carefully tracking travel, severing ties to former states, and building strong connections in Puerto Rico, individuals can position themselves for a successful transition and long-term tax benefits under Act 60.
If you have questions about Puerto Rico tax residency or need assistance preparing for an audit, reach out to our team for expert guidance.