California residency issues are one of the top five audit areas for the California Franchise Tax Board (“FTB”). An individual could be a resident of California but not be domiciled in California and conversely, an individual maybe domiciled in California but not resident in the state. Residency determines what income is taxable in California.

Generally, residents of California are taxed on worldwide income no matter where derived. Nonresidents are generally taxed only on income derived from California sources. The state will look at bot the statutory authority as well as the judicial and administrative authority in California in order to determine the state of residency on audit. Therefore, it is important that an individual be aware of each of the areas that the state will focus on during a residency audit.