Have you ever considered moving outside California because of the state taxes and cost of living? If so, you are not alone. However, moving to another state and changing your tax residency is not as simple as it seems.

Test to Determine Residency

Once you establish residency in California, there are primary and supporting factors that may determine if you can change your tax residency during the year. California has a presumption of residency if you are physically present in the state for over six months of the year. California’s additional test of residency is based on various factors related to the closest connection that the taxpayer has to a state.

These factors include:

  • Where you own or rent property
  • Where you have a driver’s license
  • Where you are registered to vote
  • Where your kids go to school
  • Where you have professional associations
  • Other various factors

Considering the Factors

Based on California’s broad approach to determining residency, taxpayers must consider all of the relevant factors and whether they are willing to physically move to another state to establish residency for tax purposes. For example, maintaining a home in California and spending time in the state while moving certain connections to Nevada may not fully establish residency in a new state. In an audit, the Franchise Tax Board will review bank statements, Uber transactions and Amazon transactions, in addition to the basic items that determine a close connection to a state.

In short, you need to be prepared to give up the benefits of living and spending significant time in California in order to genuinely change your residency for tax purposes. Establishing residency in a new state, such as Washington or Nevada, will provide substantial savings for state income tax purposes. However, it is important that you understand the rules in each state in order to reduce the risk of an improperly filed tax return.

We regularly assist clients with planning for a residency move, in addition to defending nonresident audits by the Franchise Tax Board. If you would like more information on a potential residency change and the cost/benefit of doing so, please reach out to our state and local tax team.

Ellington Frances halfbody

Frances Ellington Gutierrez

Frances Ellington Gutierrez, DBA, CPA, is the State and Local Tax Practice Leader at GHJ with a focus on multistate income and franchise tax, indirect tax and credits and incentives. Frances assists her clients on state and local tax issues related to tax audit controversy, nexus and reporting…Learn More