After retiring and moving out of Utah, will Utah still tax the monthly income from a university pension and a charitable remainder trust set up through the university?

Plain-English summary

A university employee planning retirement within a few years, and an eventual move to another state, asked the Commission two questions in writing: what happens to Utah income tax on (1) monthly lifetime income from a charitable remainder trust she serves as trustee for (through her university, legally required to stay administered in Utah), and (2) a roughly six-year university pension paying 20% of her age-56 base wage until age 62 -- both received after she moves.

Pension. A federal law effective January 1, 1996 -- Public Law 104-95 (H.R. 394, 109 Stat. 979) -- bars any state from taxing distributions to a nonresident from a "qualified plan" under specific Internal Revenue Code sections (401(a), 408(k), 403(a), 403(b), 7701(a)(37), 457, 414(d), 501(c)(18)), and also bars taxing certain nonqualified deferred compensation plan distributions if paid as an annuity over life expectancy or at least 10 years, or from a "mirror" plan arrangement. The Commission said it was likely the taxpayer's university pension is such a qualified plan, but couldn't confirm that without more information. If it is qualified (or a qualifying nonqualified plan), then once she transfers her domicile out of Utah, the monthly pension payments will not be subject to Utah income tax.

Charitable remainder trust. Public Law 104-95 treats an IRC § 401(a) trust as a qualified plan too, and § 401(a)(1) reaches trusts funded "by a charitable remainder trust pursuant to a qualified gratuitous transfer" as defined in IRC § 664(g)(1) -- which covers both charitable remainder annuity trusts and charitable remainder unitrusts. The Commission found it likely her university charitable remainder trust qualifies, but again couldn't confirm the § 664(g)(1) specifics without more facts, and included a copy of IRC § 664 for her (or her accountant) to review. If the trust meets those requirements, its distributions also won't be subject to Utah income tax once her domicile transfers out of Utah -- notably, this is true even though the trust itself must, by law, remain administered in Utah.

Transferring domicile -- the real gatekeeper question. None of the federal preemption matters until Utah actually stops treating her as a resident. Utah Code Ann. § 59-10-104 taxes residents on all their income, while § 59-10-116 only reaches Utah-source income for nonresidents. Under § 59-10-103(j), a person is a Utah "resident" if either (1) domiciled in Utah for any part of the year (taxed just for that period), or (2) not domiciled in Utah but maintaining a permanent Utah home and spending 183+ days in the state during the year. Utah Admin. Code R865-9I-2.D defines "domicile" as one's true, fixed, permanent home with the intent to return whenever absent -- and changing domicile requires both abandoning the old one and actually establishing a new one with present intent; merely intending to abandon Utah isn't enough without genuinely establishing a new home elsewhere. The Commission noted that fully divesting Utah ties and establishing all ties in the new state makes a domicile change nearly certain, while keeping some Utah ties and only partially establishing new-state ties creates real uncertainty -- it's a fact-specific, case-by-case question.

What this means for you

Retirees planning a move out of Utah

The tax savings on pension and qualifying trust income only kick in once your Utah domicile has genuinely ended -- not the moment you move boxes. Cut your Utah ties as cleanly as possible (housing, voter registration, driver's license, etc.) and establish equivalent ties in your new state to make the domicile change clear-cut, since a partial transition invites a fact dispute.

Beneficiaries of pensions or charitable remainder trusts moving between states

Federal Public Law 104-95 protects qualified retirement plan and certain trust distributions from being taxed by a state you're no longer domiciled in, even if the plan or trust itself must stay administered there. Confirm your specific plan or trust actually meets the technical qualification requirements (IRC §§ 401(a) and 664(g)(1), among others) before assuming the exemption applies.

Accountants and tax professionals

This ruling is a clean, citable walkthrough of Public Law 104-95's nonresident retirement-income preemption alongside Utah's own two-pronged residency test -- useful for any client relocating with pension or trust income tied to a Utah-based plan administrator.

Common questions

Q: If I move out of Utah, does Utah stop taxing my pension right away?
A: Only once your Utah domicile has actually ended under Utah's residency test -- not automatically upon moving. Until then, Utah continues taxing you as a resident on all your income.

Q: Does a charitable remainder trust have to move out of Utah for its distributions to escape Utah tax?
A: No. If the trust qualifies under IRC § 401(a)/§ 664(g)(1), its distributions to you can escape Utah tax once your domicile changes, even though the trust itself may be legally required to stay administered in Utah.

Q: What does it take to change my domicile from Utah to another state?
A: You must both abandon your old Utah domicile and establish a new one elsewhere with genuine intent to make it your permanent home -- intending to leave Utah isn't enough by itself.

Q: Does this ruling apply to my pension or trust?
A: No. It binds the Commission only for the requesting individual and the facts described. Another taxpayer can't rely on it as binding, though it may carry some persuasive weight in a dispute with closely similar facts.

Citations and references

Statutes and rules:

• § 59-10-116 (nonresident tax on Utah-source income)
• § 59-10-104 (resident tax on all income)
• § 59-10-103(j) (residency tests)
• Utah Admin. Code R865-9I-2.D (definition of domicile)
• Federal: Public Law 104-95 (H.R. 394, 109 Stat. 979); IRC §§ 401(a), 408(k), 403(a), 403(b), 7701(a)(37), 457, 414(d), 501(c)(18), 3121(v)(2)(C), 664(g)(1)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/99-035.htm

Original ruling text

99-035

Response April 2,
2000

REQUEST LETTER

May 24, 1999

Dear Ms. Reese:

I will be retiring in STATE within the next 3 years, and have two questions regarding my Utah income tax responsibility after moving to STATE. I would like to receive the answers to these questions in writing for both my tax records and to share with my CPA in STATE.

The first question concerns my Utah income tax responsibility for a charitable remainder TRUST. I am the trustee for a charitable remainder TRUST with UNIVERSITY in CITY. The trust is invested in mutual funds, and I am receiving monthly income from it on a lifetime basis.

My understanding is that the trust is required by law to always remain in Utah; therefore, what is my Utah income tax responsibility on the monthly income from this trust when I establish residency in STATE?

My second question concerns monthly income from a pension after I establish residency STATE. Upon retirement from UNIVERSITY at age 56, I will be receiving a monthly

pension for 6 years until I reach the age of 62. The amount of the monthly pension is equal to

20% of my base wage at age 56. What is my Utah income tax responsibility on the monthly

pension income I receive from STATE when I establish residency in STATE?

Thank you for your assistance.

Sincerely,

NAME

RESPONSE LETTER

April 2, 2000

NAME

ADDRESS

RE: Utah Income Liability for Pension and Charitable Remainder Trust

Dear NAME,

You have requested information regarding your Utah income tax liability after you move from Utah to another state. Your letter indicates that, after your move, you will receive income from a pension and a charitable remainder TRUST. You state that the pension is part of a retirement package from UNIVERSITY and will pay you a monthly income for approximately six years (from age 56 to 62). The charitable remainder TRUST, with yourself as trustee, is also established through UNIVERSITY and provides you a monthly income for life. Upon your retirement, you also indicate that you will transfer your domicile from Utah to STATE.

The Utah Individual Income Act imposes an income tax on the state taxable income of every nonresident individual for income derived from Utah sources. Utah Code Ann. '59-10-116. At issue, assuming you have transferred your domicile from Utah to another state, is whether income you receive from the pension and charitable remainder trust would be considered Aderived from Utah sources@ and , thus, subject to Utah income taxes.

Pension. Beginning January 1, 1996, a law passed by the United States
Congress and signed by the President prohibited a state to tax certain
retirement plan distributions paid to a nonresident of that state. Specifically, H.R. 394, Public Law 104-95,
109 Stat 979 (APublic
Law 104-95"), prevents a state from taxing distributions from retirement
plans and arrangements that are considered Aqualified
plans@ under the
Internal Revenue Code (AIRC@). Qualified plans are designated under IRC
sections 401(a), 408(k), 403(a), 403(b), 7701(a)(37), 457, 414(d),
501(c)(18). In addition, the bill
prohibits a state from taxing a distribution from a nonqualified deferred
compensation plan (as described in IRC section 3121(v)(2)(C)) in two cases:

(1) When the distribution is paid out in annuity form over the life expectancy of the individual or a period of not less than 10 years; and

(2) When the distribution is paid in either annuity or lump sum from arrangements known commonly as Amirror@ plans.

While it is probable that your UNIVERSITY pension is a qualified plan as designated above, you have not provided us information from which we could confirm such a conclusion. Accordingly, we cannot confirm that the pension is a qualified plan under Public Law 104-95. Nevertheless, if the pension is a qualified plan, or a nonqualified deferred compensation plan that meets the above requirements, the monthly pension payments will not be subject to Utah income tax once you transfer your domicile from Utah to another state.

Charitable Remainder TRUST. Public Law 104-95 provides that an IRC
section 401(a) trust is one of the qualified plans whose distributions cannot
be taxed by a state when those distributions are made to a nonresident. Section 401(a)(1) includes those trusts
where contributions are made to that trust Aby
a charitable remainder trust pursuant to a qualified gratuitous transfer (as
defined in section 664(g)(1))...@ As IRC section 664 provides that charitable
remainder trusts include both charitable remainder annuity trusts and
charitable remainder TURSTS, the UNIVERISY charitable remainder trust would
qualify as a section 401(a) trust if it meets the requirements of section
664(g)(1).

While it is likely that your charitable remainder TRUST is a qualified section 401(a) plan under Public Law 104-95, we are unable to confirm that it meets the requirements of section 664(g)(1) without additional, specific information. For this reason, we include a copy of section 664 for your review. With this information, you or your accountant should be able to confirm whether the charitable remainder TRUST meets the section 664(g)(1) requirements and, thus, qualifies as a section 401(a) trust. If it is such a trust, any distributions you receive from it would not be subject to Utah income tax once your domicile has transferred from Utah to another state, pursuant to Public Law 104-95.

Transfer of Domicile. The Utah Individual Income Tax Act imposes
an income tax on the state taxable income of every resident individual. Utah Code Ann. '59-10-104.
Thus, as long as you are considered a resident of Utah, Utah will impose
income tax on distributions you receive from your pension and charitable
remainder trust. While you have not
asked specific questions concerning what constitutes a transfer of domicile
from Utah to another state, it may be helpful for you to know under what
circumstances Utah would no longer consider you a resident for income tax
purposes.

A taxpayer will be a Aresident@ if he or she meets either of two tests set out in Utah Code '59-10-103(j). First, an individual will be a Aresident@ if that individual is domiciled in the state for any period of time during the year, but only for the duration of such period. The individual will also be a resident if he or she is not domiciled in Utah but maintains a permanent place of abode here and spends 183 or more days in the state during the taxable year. Utah Admin. Code R865-9I-2.D establishes the definition of Adomicile@ as follows:

"Domicile" means the place where an individual has a true, fixed, permanent home and principal establishment, and to which place he has (whenever he is absent) the intention of returning. It is the place in which a person has voluntarily fixed the habitation of himself and family, not for a mere special or temporary purpose, but with the present intention of making a permanent home. After domicile has been established, two things are necessary to create a new domicile: first, an abandonment of the old domicile; and second, the intention and establishment of a new domicile. The mere intention to abandon a domicile once established is not of itself sufficient to create a new domicile; for before a person can be said to have changed his domicile, a new domicile must be shown.

Thus, your subjective intention is critical in determining if you have abandoned your Utah domicile and established a new domicile in another state. For example, should you divest yourself of all Utah ties and establish all ties in another state, you will have almost certainly transferred your domicile. Should you maintain some Utah ties and only establish some ties in another state, then there would be a greater question as to whether your domicile has transferred. However, each case is dependent upon the unique facts relative to it.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

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