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Terminating California Residency

Dec 11, 2020

A growing number of Californians are leaving their state for states with lower or no state income taxes, as reported by the San Francisco Business Times, The Wall Street Journal and other news outlets.  Many who are considering leaving are eager to know just how completely they have to sever their California ties in order to become a nonresident in the eyes of the California Franchise Tax Board (FTB), the state income tax agency.

California Bases Residency on the Concept of Domicile 

FTB Publication 1031 provides:

  • Domicile is defined for tax purposes as the place where you voluntarily establish yourself and family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed, permanent home and principal establishment. It is the place where, whenever you are absent, you intend to return.

Domicile then requires some mind-reading to know the intention of the taxpayers.  Where do they really think of when they think of “home?”  There are many other factors that weigh into determining California residency but at the center of it all is the need to establish a new domicile.

Following are some key factors that go to the heart of determining domicile for California

Factors Supporting Termination of Domicile

  • Commencing full-time employment in new home state
  • Few or no days spent in California subsequent to departure
  • Moving all household items and possessions to new home
  • Obtaining new doctor, dentist, and other social relationships in new home
  • Joining organizations, clubs, and participating in ongoing activities in new home
  • Paper trail: changing voter registrations, driver’s license, professional licensures to new home

Factors Supporting Continuing California Domicile

  • Continuing to maintain a home for personal use of the taxpayer and/or family members
  • Continuing to work in California on a regular basis
  • Weeks or months spent in California
  • Not maintaining a permanent home outside of California
  • A short duration away from California followed by a return to California

Californians changing their tax residency file a Nonresident or Part-Year Resident income tax return for the year in which they depart; if they have ongoing income from California sources, they file Nonresident tax returns thereafter.  Included in these tax returns is a Residency Information form that must be filled out each year where the following information is to be provided:

  • State of domicile
  • Date the taxpayer became a nonresident
  • Number of days spent in California during the year
  • Whether the taxpayer owned a home/property in CA
  • Period of CA residency before departure

Determining domicile can be a gray area and it is subject to interpretation.  In the movie Pulp Fiction, Marsellus Wallace tells Butch “We’re cool.” But then says “Leave town.  Tonight.  Right now.  And when you’re gone, stay gone.”  That may be good advice for those wishing to make a clean break of California domicile.

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Paul S. Bleeg

Paul Bleeg is a Tax Partner responsible for overseeing tax compliance and planning in the firm’s Private Client Services Group, as well as authoring tax research memorandums on various individual, partnership, corporate issues.

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