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.
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.
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.
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. 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 threeweek 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.
Significance of Residency
Residency is significant because it determines what income is taxed by California. For more information, see Section I, Income Taxable by California.
Guidelines for Determining Residency
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.
Temporary or Transitory Purposes Generally, your state of residence is where you have your closest connections. If you leave your state of residence, it is important to determine if your presence in a different location is for a temporary or transitory purpose. You should consider the purpose and length of your stay when determining your residency. Military personnel and spouses, get FTB Pub. 1032. Coming into California When you are present in California for temporary or transitory purposes, you are a nonresident of California. For instance, if you come to California for a vacation, or to complete a transaction, or are simply passing through, your purpose is temporary or transitory. As a nonresident, you are taxed only on your income from California sources. When you are in California for other than a temporary or transitory purpose, you are a California resident. For instance, if your employer assigns you to an office in California for a long or indefinite period, if you retire and come to California with no specific plans to leave, or if you are ill and are in California for an indefinite recuperation period, your stay is other than temporary or transitory. As a resident, you are taxed on income from all sources. You will be presumed to be a California resident for any taxable year in which you spend more than nine months in this state. Although you may have connections with another state, if your stay in California is for other than a temporary or transitory purpose, you are a California resident. As a resident, your income from all sources is taxable by California. Example 1 – You are a business executive and reside in New York with your family. Several times each year you travel to other states for business purposes. Your average stay is one or two weeks and the entire time spent in California for any taxable year does not exceed six weeks. Your family usually remains in New York when you are traveling for business purposes. Determination: Under these circumstances, you are not a California resident because your stays in California are temporary or transitory in nature. As a nonresident, you are taxed only on your income from California sources, including your income for services performed in California. Example 2 – In December 2019, you moved to California on an indefinite job assignment. You rented an apartment in California and continued to live in the apartment. You retained your home and bank account in Illinois until April 2020, at which time you sold your home and transferred your bank account to California. Page 6 FTB Pub. 1031 2020 Determination: Your assignment in California was for an indefinite period; therefore, your stay in California was not of a temporary or transitory nature. Although you kept ties in Illinois until April 2020, you became a California resident upon entering the state in December 2019. As a resident, you are taxed on your income from all sources.
Leaving California Any individual who is a resident of California continues to be a resident when absent from the state for a temporary or transitory purpose. An absence from California under an employment-related contract for a period of at least 546 consecutive days may be considered an absence for other than a temporary or transitory purpose. See “Safe Harbor” on page 4 for more information. Example 3 – Until September 2020, you were a resident of California. At that time, you declared yourself to be a resident of Nevada, where you have a summer home. You continue to spend six or seven months each year at your home in California, which you have retained. You spend only three to four months in Nevada and the rest of the time traveling in other states or countries. You transferred your bank accounts to Nevada. However, you continue to maintain your social club and business connections in California. Determination: Your declaration of residency in Nevada does not establish residency in that state. Your closest connections are to California and your absence from California is for temporary or transitory purposes. You are, therefore, a resident of California and are taxed on your income from all sources. Example 4 – You and your spouse/RDP are California residents. You accept a contract to work in South America for 16 months. You lease an apartment near the job site. Your contract states that your employer will arrange your return back to California when your contract expires. Your spouse/RDP and your children will remain in California residing in the home you own. Determination: You maintain strong ties with California because your spouse/RDP and children remain in your California home during your absence. Your intent is to return to California, and your absence is temporary and transitory. You remain a California resident during your absence. You are taxed on income from all sources, including income earned in South America. Example 5 – You receive and accept a permanent job offer in Spain. You and your spouse/RDP sell your home in California, pack all of your possessions and move to Spain on May 5, 2020, with your children. You lease an apartment and enroll your children in school in Spain. You obtain a driver’s license from Spain and make numerous social connections in your new home. You have no intention of returning to California. Determination: You are a part-year resident. Through May 4, 2020, you were a California resident. On May 5, 2020, you became a nonresident. All your income while you were a resident is taxable by California. While you are a nonresident, only income from California sources is taxable by California. Example 6 – You are a resident of California. You accept a 15-month assignment in Saudi Arabia. You put your personal belongings, including your automobile, in storage in California. You have a California driver’s license and are registered to vote in California. You maintain bank accounts in California. In Saudi Arabia, you stay in a compound provided for you by your employer, and the only ties you establish there are connected to your employment. Upon completion of your assignment, you will return to California. Determination: You have maintained greater connections with California than you have established in Saudi Arabia. Your absence is for a temporary or transitory purpose. Therefore, you remain a California resident. As a California resident, your income from all sources is taxable by California, including the income that you earned from your assignment in Saudi Arabia. Example 7 – You are a resident of California and a single taxpayer. You accept a three-year assignment in Japan. Your assignment in Japan covers the period January 1, 2019, through December 31, 2021. You rented out your residence and put your truck and belongings in storage in California. You maintained your California bank accounts, driver’s license, and voter registration. You have less than $200,000 of intangible income during each year. Upon completion of your assignment, you intend to return to California. You returned to California to visit family no longer than a total of 45 days during 2019 or 2020. Determination: You meet the safe harbor rule. You are a nonresident during your absence from the state.
Residents of or Individuals in Foreign Countries If you are a resident of a foreign country and perform services in California and/or receive income from California sources, you may have a California income tax filing requirement even if you do not have a federal filing requirement. Tax Treaty A tax treaty between the U.S. Government and a foreign country may exempt some types of income from federal taxation. Generally, unless the treaty specifically excludes the income from taxation by California, the income is taxable. Example 1 – You are a resident of China doing research at a university in California and received wages of $15,000 for teaching and doing research. For federal income tax purposes, the wages are excludable due to the tax treaty between the United States and China. Amounts received for teaching, research, or other services performed by a student are not excludable as a qualified scholarship or fellowship, even if the services are required as a condition of receiving the scholarship or fellowship. Determination: Although the wages may be exempt from income for federal income tax purposes, the wages will be taxable by California. The tax treaty specifically states that the taxes covered by the tax treaty are federal income taxes imposed by the Internal Revenue Code. Tax treaties between the United States and other countries which expressly limit their application to federal income taxes do not apply to California. Nonresidents are taxed by California on wages for services performed in California. Since you received wages for services performed in California, the wages are taxable by California. Include the wages of $15,000 on Schedule CA (540NR), Part II, Section A, line 1, column C. Income Tax Clearance A federal income tax clearance does not affect your California tax liability. The FTB does not issue tax clearance certificates for individuals in this situation. Foreign Tax Credit or Foreign Earned Income Exclusion California does not allow a foreign tax credit or a foreign earned income exclusion. If you claimed the foreign earned income exclusion on your federal return, include the amount of your foreign earned income exclusion on Schedule CA (540NR), Part II, Section B, line 8f,
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. 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.