If you currently live in California but used to live in another state, you may have noticed that taxes tend to be higher here. We get a lot of great services for that money, but paying state taxes can be expensive. So much so, in fact, that some people contemplate a strategic out-of-state move to avoid the higher tax rates - especially if they know they'll soon be coming in to some money (selling a business, selling real estate, settling litigation, etc).
Unfortunately, strategically giving up state residency is not as easy as it sounds. It can also be difficult to claim that you are not a resident of California if you spend considerable time here for business or personal purposes.
This was the subject of a recent article on the Forbes website. The article's author describes some of the considerations that go into deciding residency for tax purposes.
Who is a California resident?
Generally speaking, you are considered a Californian if you are in the state for more than nine months. You may also be considered a resident if you have a home here, even if you spend time outside the state "for a temporary or transitory purpose."
Here are some other factors that the California state government may consider when determining your residency status:
- Where you own a home (including your "main" domicile, if you have more than one property)
- Where you claim a homeowner's property tax exemption
- Where your children attend school
- Where your children and your spouse primarily live
- If you or your children attend college in California, whether you pay in-state or out-of-state tuition
- Where you are registered to vote
- Where your vehicle is registered and where your driver's license was issued
- Where you have a bank account
- Where your important social, religious and professional organizations are located
- Where you obtain services like medical care, dentistry, legal advice and financial advice
Before making strategic tax decisions, consult with a professional
If you answered "in California" to several of the above criteria, you are probably a California resident. Even if you move before making a big financial change, California tax authorities could still pursue payment from you.
Before making any major financial decisions for tax purposes, it is a good idea to discuss your plans with an experienced tax law attorney.