Determining Residency for California Income Taxes

Many of our clients have residences in or spend a significant amount of time in both Nevada and California.  Although the state of Nevada has no income tax, the state of California taxes non-residents on any California taxable income and California residents on all income.  If individuals are not careful, they may be considered residents of California and therefore subject to California income tax on all of their income.  Fortunately, the California Franchise Tax Board has issued some guidelines for determining resident status.

FTB publication 1031 sets out the test for determining residency as follows:

“A resident is any individual who meets any of the following:

• Present in California for other than a temporary or transitory purpose.
• Domiciled in California, but outside California for a temporary or transitory purpose.”

The publication further explains, “[t]he underlying theory of residency is that you are a resident of the place where you have the closest connections.” The Franchise Tax Board Publication also provides the following partial list of factors that the state may consider in determining whether a person is a resident or non-resident:

• Amount of time you spend in California versus amount of time you spend outside California.
• Location of your spouse and children.
• Location of your principal residence.
• State that issued your driver’s license.
• State where your vehicles are registered.
• State in which you maintain your professional licenses.
• State in which you are registered to vote.
• Location of banks where you maintain accounts.
• The origination point of your financial transactions.
• Location of your medical professionals and other healthcare providers, accountants, and attorneys.
• Location of your social ties, such as your place of worship, professional associations, or social and country clubs of which you are a member.
• Location of your real property and investments.
• Permanence of your work assignments in California.

If a person is treated as a resident of California, it may subject them to potentially large income tax consequences.  Aside from the tests and factors outline, there are many other things to consider when determining or evaluating residency.  Should you have any questions regarding your residency status, please contact our office.

Attorney – Corey J. Schmutz