Discussion:Resident of California?

 I have a client with the following information:

Dave moved to Reno, Nevada on January 1st of last year with the intent to make Reno his domicile. Dave immediately obtained a Nevada driver’s license, registered to vote in Nevada, purchased a home in Nevada, registered his personal vehicle in Nevada, and maintained his nonbusiness bank accounts at a bank in Reno. Dave, however, maintained a one-bedroom apartment in San Francisco because he regularly traveled there for REC’s business.

Do you think he is a resident of California?

Thanks

California will look askance at this situation. In order to change his domicile to Nevada, the client would have to move away from his California home (which he evidently has not done), move to and reside in Nevada, and intend to remain in Nevada permanently or indefinitely. Is the client married? Where does the spouse live? Children? Where do they go to school? Social ties -- club memberships, etc? Church membership/attendance? Where does he obtain professional services -- doctor, dentist, accountant, attorney? Most importantly, where does the client spend his time? California does not have a half-year or 183-day rule, as some states do, but if he spends more days in California than in Nevada during the year, that will weigh heavily towards California residence. It is imperative that he keep precise documentary records of his presence in California, Nevada, and other places during the year. Spending non-working time in California is a really dumb thing to do in this situation. He should stay out of California unless he really needs to be here for business.

All of the facts and circumstances must be taken into account to determine residence. We do not have enough facts here to come to a conclusion, but from the facts given the change of residence is certainly questionable.

I'd suggest reading the California law (Cal. Rev. & Tax. Code Sec. 17014) and the associated regulations, and also Sec. 2000 of the FTB's Residency and Sourcing Audit Manual (http://ftb.ca.gov/aboutFTB/manuals/audit/rstm/2000.pdf). The regulations state that an individual's residence is the state where he has the closest connections during the taxable year. It's like putting weights on a scale. My guess so far is that the FTB would probably assert that he remained a California resident, but if his time in California is limited, he spends most of his time in Reno, and his family is in Reno, he may have a good argument. On the other hand, if he has no ties to Reno other than those you've listed (mostly formalities), and spends significant amounts of time in California, he's probably a dead duck.

Mom and girls moved out of the OC house, which was put on the market. Dad was still working for the company he helped found. They moved everything out of the house other than what Dad and adult son needed in order to stay there until the house sold. Every Friday night Dad flew to Reno, Mom picked him up and drove him home to Incline Village. Every Monday morning she dropped the girls at school and took Dad to the Reno airport to fly back to John Wayne. Mom was a great record keeper and had ALL of the plane tickets. The house was not a permanent abode because it was listed for sale and if it had sold, he and sonny would have had to move out. He didn't keep a personal vehicle in California, but used a company car during the week. And of course they had moved their driver's licenses, voter registration, bank accounts, vehicle registrations, etc., etc to Nevada.

The auditor said Mom was a nonresident of California, but that Dad had not changed his domicile (partly because he was out of town when Mom and girls physically moved out of the house), and his presence in Nevada was for temporary purposes, so he was still a resident. I argued that his domicile had changed (in fact, when he went home from that out-of-town trip, he went home to Nevada to help unpack, not to California; he said otherwise his wife would have killed him) along with the rest of the family, and that his presence in California after that was for the temporary purpose of performing services for his employer. We were able to document that he did not spend a single day in California after the move other than working days.

I should also mention that after the move to Nevada, Dad sold another big chunk of his stock to the VCs at a substantial gain. The major adjustment was taxing his community 1/2 of the gain on the stock sale (Mom's 1/2 was excluded because the auditor agreed she was a nonresident). The hearing officer agreed with me that the taxpayer was a nonresident. But if he had been single, I doubt that I could have convinced her, particularly if he had spent vacation time in California as well as working time. In that case he would have been a resident, and his share of the gain on the stock sale would have been subject to California tax.

Tax123.., has the client made serious efforts to sell the business, and can you document that? Just telling you he planned to sell the business isn't the same as seriously trying to sell it. That could be a helpful fact, but again, the most important element is time in California vs. time in Nevada.

States have the power to tax residents on all income, from all sources. Shaffer v. Carter, 252 U.S. 37, 40 S. Ct. 221 (1920); Travis v. Yale & Towne Mfg. Co., 252 U.S. 650 (1920).

Does he have other family -- parents, siblings? Where do they live?

Mind, I'm not saying you don't have an argument. But I don't think it's conclusive; at least, I don't have enough information to come to that conclusion.

Where are his business bank accounts, brokerage accounts, etc.? What about professional services? etc., etc.