Am I a California Resident for Tax Purposes: What to Know

How to Determine Residency in California for Taxes

What are California’s Tax Residency Rules 

California has one of the highest tax rates anywhere in the United States, other than New York and New Jersey. Unless a taxpayer is a full-time resident in California and/or considers California to be their domicile, chances are they do not want to be classified as a California resident for tax purposes. That is because if a person is considered a resident of California, they generally have to pay California state income tax on all of their income. But, if instead, a person has been deemed a non-resident of California — then they generally only have to pay California tax on income that is sourced within California. One common example of a non-resident of California with a CA tax liability is when a non-resident earns income on rental property they own in California, even if they reside outside of California. California has a far-reaching ‘long arm statute‘ — with the intent of classifying taxpayers as residents vs. non-residents when at all possible. Let’s take a look at some of the basics in determining whether a person is considered a resident in California for income tax purposes.

Guidelines for Determining Residency

As provided by the state of California

• • • “The underlying theory of residency is that you are a resident of the place where you have the closest connections. The following list shows some of the factors you can use to help determine your residency status. Since your residence is usually the place where you have the closest ties, you should compare your ties to California with your ties elsewhere. In using these factors, it is the strength of your ties, not just the number of ties, that determines your residency. This is only a partial list of the factors to consider. No one factor is determinative.

      •  Consider all the facts of your particular situation to determine your residency status. Factors to consider are as follows:

        • Amount of time you spend in California versus amount of time you spend outside California.

        • Location of your spouse/RDP and children.

        • Location of your principal residence.

        •  State that issued your driver’s license.

        • State where your vehicles are registered.

        •  State where you maintain your professional licenses.

        •  State where you are registered to vote.

        • Location of the banks where you maintain accounts.

        •  The origination point of your financial transactions.

        •  Location of your medical professionals and other healthcare providers (doctors, dentists, etc.), 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.

        • Note: If you are impacted by the COVID-19 pandemic, it is one of the factors we will consider as we apply the general rules for residency and income sourcing included in this publication. For more information related to COVID-19 pandemic, go to ftb.ca.gov and search for covid-19.

Domicile vs Residence

One of the most important concepts when it comes to determining whether or not a person is considered to be a resident of California for tax purposes is determining whether California is their domicile. While domicile is similar to ‘residence,’ it is much more encompassing — and just because a person may reside in a location outside of California temporarily does not change the fact that California may still be their domicile – and thus the Taxpayer would be subject to tax as a California ‘Resident.’

As provided by the State of California

• • • • Meaning of Domicile The term “domicile” has a special legal definition that is not the same as residence. While many states consider domicile and residence to be the same, California makes a distinction and views them as two separate concepts, even though they may often overlap.

      • For instance, you may be domiciled in California but not be a California resident or you may be domiciled in another state but be a California resident for income tax purposes. 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.

      • The maintenance of a marital abode in California is a significant factor in establishing domicile in California. Change of Domicile You can have only one domicile at a time. Once you acquire a domicile, you retain that domicile until you acquire another.

How to Change Your California Domicile

Taxpayers who are concerned that California may want to use the California long-arm statute to consider them residents of California for tax purposes can take specific steps to change the domicile their domicile.

As provided by the State of California:

“A change of domicile requires all of the following:

• • • • Abandonment of your prior domicile.

      • Physically moving to and residing in the new locality.

      • Intent to remain in the new locality permanently or indefinitely as demonstrated by your actions.”

Resident vs Non-Residents

The CA tax implications for being a resident of California can be much more significant than for non-residents. Therefore, it is important the taxpayer stay aware of how California defines a resident vs non-resident.

As provided by the State of California:

Who Are Residents and Nonresidents

• • • 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. See Section L, Meaning of Domicile. A nonresident is any individual who is not a resident.

      • A part-year resident is any individual who is a California resident for part of the year and a nonresident for part of the year. Safe Harbor Safe harbor is available for certain individuals leaving California under employment-related contracts. The safe harbor provides that an individual domiciled in California who is outside California under an employment-related contract for an uninterrupted period of at least 546 consecutive days will be considered a nonresident unless any of the following is met:

      • The individual has intangible income exceeding $200,000 in any taxable year during which the employment-related contract is in effect.

      • The principal purpose of the absence from California is to avoid personal income tax. The spouse/RDP of the individual covered by this safe harbor rule will also be considered a nonresident while accompanying the individual outside California for at least 546 consecutive days. Return visits to California that do not exceed a total of 45 days during any taxable year covered by the employment contract are considered temporary. Individuals not covered by the safe harbor determine their residency status based on facts and circumstances. The determination of residency status cannot be solely based on an individual’s occupation, business, or vocation. Instead, consider all activities to determine residency status. For instance, students who are residents of California leaving this state to attend an out-of-state school do not automatically become nonresidents, nor do students who are nonresidents of California coming to this state to attend a California school automatically become residents. In these situations, individuals must determine their residency status based on their facts and circumstances, as described in Section G, Guidelines for Determining Residency, and Section H, Temporary or Transitory Purposes.

Examples of California Residency Rules

• • •  Example 1 – You are a California resident.

      • • You agreed to work overseas for one year.

        • You returned to California after the employment contract expired and stayed for three months.

        • Then, you signed another contract with the same employer to work overseas for another year.

        • You cannot be considered a nonresident under the safe harbor rule because your absence from California for employment reasons was not for an uninterrupted period of at least 546 consecutive days.

        • You cannot combine the days you were overseas from the two separate contracts.

    • Example 2 – You are a California resident.

      • • You transferred to your employer’s Germany office for a two-year work assignment.

        • You visited California for a three-week vacation. Under the safe harbor rule, you were a nonresident of California for the two years you were in Germany.

          • Your three-week visit to California is considered temporary.

• • • Example 3 – You and your spouse are California residents.

      • • You agreed to work overseas for 20 months under an employment contract.

        • Your family remained in San Diego, CA.

        •  During those 20 months you visited your family in San Diego for a month.

        • You can be considered a nonresident during your absence under the safe-harbor rule.

        • Your month-long visit to California is considered temporary. During the year, you earned $80,000 on your overseas assignment and your spouse earned $30,000 as a teacher in San Diego.

          • You did not have any other income. The tables on the next page show how to report income if you filed a joint income tax return or separate income tax returns.

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