Teddy Bear Tax Law

The Teddy Bear Law is a framework used to determine tax residency based on where someone's most valued possessions and life connections are located, rather than just time spent in a location.

Core Concept

• Named after Derek Jeter tax residency case
• Focuses on where someone would keep their most cherished possessions (like a teddy bear)
• More subjective approach than strict day counting
• Looks at the "spirit" of residency rather than technical requirements

Key Factors Considered

• Location of personal possessions, especially valued items
• Where children attend school
• Where family members live
• Location of primary work activities
• Where friends and social connections are based
• Physical home/apartment location
• Overall lifestyle patterns

Why It Matters

• Determines state tax obligations
• More comprehensive than just counting days
• Harder to game the system through technical compliance
• Reflects actual living patterns rather than temporary presence

Real World Application

• Used in court rulings for tax residency disputes
• Particularly relevant for:
  • Professional athletes
  • High net worth individuals
  • People with multiple homes
  • Those trying to establish residency in low-tax states

Limitations

• Subjective nature makes compliance planning difficult
• Can be challenging to definitively prove or disprove
• Requires consideration of multiple factors
• May conflict with technical residency requirements