How to Determine Residency for California State Income Tax Purposes

The California Franchise Tax Board (FTB) can come after snowbirds and other people who spend time in California, but maintain a tax residence in other states. For California income tax purposes, nonresidents are only taxed on income earned from California sources. Residents, on the other hand, are taxed on all of their income, even if it was earned outside of California, and even if it was earned outside of the country.

The difference between having a status as a California tax resident or nonresident can therefore amount to tens of thousands of dollars in potential tax liability, and tens of thousands of dollars in additional revenue to The Golden State. The general definition of a resident is an individual who is present in California for other than a transitory or temporary purpose, or someone who is domiciled in California, but it located outside of California other than for a transitory or temporary purpose.

The term “domicile” means 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. Determining whether a visit is temporary or transitory depends on the purpose and length of the visit.

These legal terms may seem difficult to apply to your circumstances, particularly if you maintain residences in multiple states. The FTB will examine various factors when determining whether or not you are a California tax resident, including:

• the amount of time your spend in California compared to the amount of time your spend outside of California
• the location of your spouse and children
• the location of your principal residence
• the state that issued your driver’s license and vehicle registration
• the state where you vote
• where your business interests and real estate interests are located

Those who own a second home in California may unexpectedly be considered tax residents by the FTB. Individuals who leave California, but maintain ties to the state, may find that the FTB still considers them California residents, particularly if they leave for a state with no income tax, such as Texas or Florida. If you spend nine months or more out of the year in California, there is a presumption that you’re are a California tax resident.

When the FTB believes that a return should have been filed but was not, it can use its Filing Enforcement Program to request a tax return. If a taxpayer does not respond, the FTB can assess tax against you, using information from various sources, including the IRS.

If the FTB has notified you that you should have filed a California income tax return, consult with a California tax attorney to determine your best course of action.