Moving Avoids California Tax? Not So Fast
forbes.com
forbes.com
I know for me, as a relatively high income individual, the FTB did not even make a peep about our residency change. They didn't even ask for any documentation, to the best of my recollection.
I’d say it was California that was behaving that way…unless you take the position that you can be a resident in multiple states…in which case you should be able to vote in multiple states, claim unemployment in multiple states, have driver’s licenses in both states etc.
https://www.ftb.ca.gov/forms/misc/1004.html#D-Incentive-Stoc...
That shouldn't be a justification if the person doesn't actually live in the state anymore.
I have bank accounts in states I haven't lived for decades and that hasn't been any issue. Heck I even autodeposit my salary (from California) to my primary bank account in a different state, out of habit.
(It's good for credit rating to keep long-standing accounts open, so that's why I never close accounts if I move.)
My wife and I moved overseas around the same time, filing one CA non-resident/partial year filing. In subsequent years, we only filed IRS returns with the foreign earned income exclusion, etc. and had no further issues. It was the other, ongoing treasury department reporting requirements that were a pain, not taxes per se. We eventually moved back and had another CA partial-year return to start things up again.
We even used a trusted relative's CA address as our mailing address for federal tax filings and US financial accounts we kept open while abroad. We did let our CA drivers licenses lapse while getting new ones overseas.
Like many states with income taxes, California taxes income earned in California by nonresidents, so if you work in California at all you will owe California taxes.
I understand your point, but people who do this are still paying 100% of their federal income tax and 100% of the income tax for the state they reside in.
That gets complicated if you live in an income tax-free state. But it feels substantively different from the person who parks their money off-shore to pay no tax to anyone.
https://www.forbes.com/sites/kurtbadenhausen/2016/02/03/cali...
It seems simple but in practice often is not for anyone that has enough money for the state to care about.
I know many people who moved out and California was aggressively after them for years even though they fully moved and lived elsewhere and had sold away every last scrap of property they had in CA to avoid having any connection.
And as with most things, the burden is on you to the extent that you want to actually prove them wrong. If you don't find yourself going back to California and you're willing to get a nasty letter from them every now and then, it's really a non-issue even if they firmly believe you are/were a California resident. They can't lien property outside of the state. If they put something on your credit report, you can dispute it with the reporting agency (who are much more likely to be reasonable than some FTB bureaucrat). Yes it can be a pain in the ass but I don't think it's nearly as big of a hurdle as TFA is making it out to be.
The IRS also looks at if you have joined a church or other social organization in PR. That's a rough one for me if I get audited. While I didn't end up going to PR, I left the country two years ago and during an audit I would not fare well not being able to point to any social organizations, relationships with the opposite gender, or friendships I have overseas even though lawyers suggest setting all of these up. I'm not that social so I'm at risk and hope I don't face an audit. (Covid was a big factor in avoiding social contact too.)
Although all the about is IRS related, I think it's well established that states often work with the IRS procedures as inspiration for their own
That's quite out of scope of the California thread though, as it is a much more complex situation. Income in PR is not subject to US taxation (even federal) so it's quite unlike moving in or out of a state like California.
Substantial connection tests and such
[1] - https://en.wikipedia.org/wiki/Category:Banks_based_in_Califo...
Not really. There's no legitimate reason one would have to sell all property in a state when moving out, for example. I should be able to keep them as rental units as long as I legitimately live in some different state.
A friend had to even sell off some empty undeveloped land to fend off California taxes, even though there was no way he could be claimed to live there, it was just empty land!
After a year, you move out of California and continue at the same job.
In year 1, you'll pay California taxes on the 1000 shares that vested at the end of that year.
What about years 2, 3 and 4? You'd guess that you wouldn't pay any California taxes on those vest events. Because you 'earnt' those shares after you left CA.
Not so fast. Because you were living in CA when those 4000 shares were granted (on a 4 year vesting schedule), you'll pay taxes on these proportions of each vesting event:
Year 1: 100% (lived in CA since grant to vest date)
Year 2: 50% (lived in CA for half the time between grant and vest)
Year 3: 33%
Year 4: 25%
So, even though you lived in CA for only 25% of the time, you pay CA tax on over 50% of your shares.
I know some folks who left the state and got a “taxes owed” notice from FTB. They replied with “i haven’t set foot in CA for 3 years, I don’t owe anything” and the FTB dropped it.
It’s basically the same as NY and NJ which does it’s best to get its pound of flesh.
Edit: I missed this update, but apparently the SC told NH they cannot sue MA, so as far as I now, NY and MA have been cleared to continue collecting income tax from people not working in their states.
https://www.cbsnews.com/news/supreme-court-wont-allow-new-ha...
[0] - https://www.investopedia.com/articles/tax/09/restricted-stoc...
A) An article on Investopedia, that has a section about taxes in general, but not about California tax in particular.
B) A comment from someone on HN talking specifically about California tax law.
C) A publication by the California Franchise Tax Board.
Which would you pick?
If you chose B, check out my earlier comment.
If you chose C, check out https://www.ftb.ca.gov/forms/misc/1004.html
Not sure why you would choose A, as it's neither specific to California taxes, nor is it an authority.
Where did you get the 33%/25% for years 3 & 4?
1 year in Cali out of 4 years after grant before vest = 25%
This is missing the best and most appropriate option:
D) Consult with tax accountant/lawyer very familiar with California.
If non-trivial money is involved, anything else is playing with fire.
If I'm reading it right, I should move the hell out of CA as fast as possible and skip waiting until next year as planned.
Search for the phrase 'one reasonable method'.
To me, in the contrived example I outlined, it seems reasonable to pay CA tax only on the first year's vest. But, from reading the linked page, I'm not sure whether the CA tax authorities could be made to see it the same way.
Of course, your friends are free to declare and pay taxes as they see fit, given their understanding of the law, their risk tolerance etc.
- RSUs are a type of restricted stock, which suggests that they would be covered by section E. (supporting my earlier assumption.)
- The examples in section E talk about 'purchase date' instead of 'grant date', suggesting they're talking about RSAs. (supporting your point.)
However: RSUs must be covered by that publication somehow. If they're not covered by section E, then which section covers them?
Other states even have forms for you to submit this calculation to them, see for example New York's IT203-F Schedule B. But you still have to apportion the income between states like this whether there's a form to do it on or not.
It might sound expensive, but the alternative is worse. Consider a friend of mine during the 1999 stock bubble who had stock options. The bubble burst, and he owed taxes on the bubble amount, even though he never sold the stock. He was bankrupted, lost his house, and moved in with his family to a trailer. He had no idea about the tax consequences of his options.
California is free to make up whatever nonsense California wants to make up. It doesn't mean that anyone needs to recognize it or be bound by it if they're in California. Just as the GDPR doesn't actually have any authority over US companies that don't operate within the EU, if I'm not a resident of California, California can say whatever it wants about my tax status but that's just not how it works in reality. No other state recognizes FTB's jurisdiction over former-Californian-now-State-X-residents. If you don't live in California when your shares vest, California can claim it has a right to some tax revenue, but it doesn't.
To my knowledge this hasn't been adjudicated to any court outside of California so whether or not it's legal in a broader sense remains to be seen. It's certainly possible, but until there's case law to support California taxing former residents on income earned/vested after California residency ended, it's fanciful.
But, even if no other state would enforce California's claim, couldn't the FTB get a court judgement against you in California? And then enforce by nabbing you next time you pass through SFO, or by seizing any property you might have?
There are a ton of people in the Northeast waiting for the courts to review why NY and MA are entitled to income tax from them even though they have not stepped foot in either state in 18 months.
The question is do you have enough time and money to fight it long enough in court while CA/NY/MA can lean on the employers and national banks to simply withhold the funds.
Edit: I missed this update, but apparently the SC told NH they cannot sue MA, so as far as I now, NY and MA have been cleared to continue collecting income tax from people not working in their states.
https://www.cbsnews.com/news/supreme-court-wont-allow-new-ha...
If you move, deliberately cut all official ties like license, voting registration, storage units, etc.
All of which makes sense: if you're moving these are things you should do anyway. It's likely that California is probably much more strict in chasing down these details because its high tax rate makes it attractive to have a legal residence in one state while mostly still operating out of CA.
They sent me a tax demand notice, and despite repeatedly proving to them that not only was I not a California resident at the time but that I wasn't even resident in the United States at the time, they're still after me for their ~$50.
I refuse to pay it on principle, so I've just resigned myself to the knowledge that I'll get a letter from them every spring until either I die or California secedes.
Why would California seceding have any effect?
Yes some well-intentioned people unfortunately get caught in this mess at times, but a far greater number are those who worked for a SV startup for years and conveniently moved to a no-tax state a month before IPO when all their stock became "real".
* cancelled my UK driving licence
* cancelled my library card
* changed the address on all bank accounts
* cancelled my mobile phone contract
...
I haven’t gotten rid of my state id as I would like an American one to use when I’m in the US.
I haven’t switched my voter registration (other than to say I’m overseas) as I have the legal right to vote at my last US address.
I haven’t switched my official address registration (not sure what that is, presume you mean via usps) as it is a pain internationally and someone living at my old address can still send me any mail (lots of services won’t even take a non-us address).
I don’t spend much time in California (less than a month so far in 2021) but I still have some income there.
I don’t think my situation is unique, I just worry that one day the franchise tax board will attempt to collect taxes which they don’t deserve (I live in a country with a higher tax rate than California, I don’t think I’m trying to avoid any taxes).
I kept a US driver license out of convenience in CA. Never was a problem, though I transitioned it to another state where I had family ties and a mailing address hear later.
I kept my CA bank account out of practicality. It was the only bank I had dealt with out of about six in rapid succession that was supportive and friendly with my living abroad (e.g., power of attorney, wire transfers without being in-person).
Voter registration in CA is fine per Uniformed and Overseas Citizens Absentee Voting Act (UOCAVA). You are entitled your vote; what will differ is whether the state grants you purely federal or also local voting rights. You get federal at a minimum. UOCAVA is a bit hand-wavy with the criteria, so I did transfer my voter registration to the other state where I had the license.
For the one year I was half-in California while also being abroad, I still filed taxes accordingly for that year for CA. IIRC, I might have even filed 0 in a CA FTB form for the next year.
So: in short, multiple years with "weak" bureaucratic carryover ties in CA without issue, but ultimately transferred all matters aside from bank account to a state with deeper ties (even if living abroad). Never an issue.
The real monster, which dates back to the US Civil War, is the need to pay and file taxes when domiciled abroad. You can then add FATCA on top of that as a cherry. The CA FTB is a dream compared to the IRS here. I’ve basically accepted that this situation won’t improve in my lifetime. Maybe my children’s.
If you can break major ties with CA (not earning income in the state, you don't have a home in the state, you spend less than 30 days a year in the state) and show substantial evidence of residency in another place (employment contract, primary residence, etc) then it's a bit cleaner.
I moved from California to Hong Kong years ago.
Somehow, I'm still supposed to be filing tax returns in the US and in CA. It's absolutely bonkers.
I haven't stepped foot in the US in >18mo.
The USA won't let go of their hold on me, forcing me to pay taxes in a country and state I don't live, and refuses to consider me a non-resident unless I go through a complex process to renounce my green card, and give it a long buffer time.
It's absurd. I wish I could just tell them to shove it, but sadly I do need the ability to come back for the occasional work meeting and personal reasons.
You can vote nationally, but if you are no longer a California resident, you can't vote for any parts of the state elections.
Get a virtual mailbox, ideally in another state (like Washington, Texas, etc).
If you have California income, you still owe them taxes, but need to file as a non-resident.
Your situation isn't unique, but you're not approaching this correctly if you want to avoid taxes. I'm in your situation, but did a bit of research and put in the effort to do this in a way that makes it way less likely I'll be audited by CA.
South Dakota is famous for this but a few other States are also popular. From the State’s perspective they are generating a bit of revenue from someone who otherwise consumes no resources, so it is a good deal for both parties.
Like another poster said, you can go to South Dakota for literally a day or two and fulfill their residency requirements, but that is not likely to be enough for tax purposes. You should be employed by a company registered in that state; you should have a physical mailing address in that state (e.g. a PMB); you should file a USPS change of address form listing your new mailing address as your official address and change your registered address with service providers like banks and telecom; you should avoid spending more than 182 days per year in any other state as another poster mentioned; etc.
Is this a requirement?
I don't fill out COA forms anymore because the idiotic assholes at USPS hand out your new address to stalkers, harrassers, spammers that knew your old address
If you want to avoid people knowing your address, I would recommend using a "private mailbox" (PMB) service and making that your official address. This gives you an address that is recognized as a physical address by most services and USPS but basically functions as a mail proxy: they will receive your packages / letters and forward them to another address you provide them. If you are concerned about stalkers or other hostile people, you could have the PMB forward mail and packages to a P.O. Box or commercial mail receiving agency (UPS Store et al) which is not where you live. Escapees and America's Mailbox are examples of PMBs with receiving facilities in South Dakota.
But so does the federal government, doesn't it?
I benefit from being a U.S. citizen, namely passport, so there's at least some justification. Otherwise I'd be stateless, which is a nightmare classification to be.
I garner no benefits not being in the state vs another one. I suppose if I care local elections that's... it?
Pretty much unlikely you'll qualify the first year. But after should be easy enough.
https://www.irs.gov/publications/p54#en_US_2020_publink10004... https://www.irs.gov/publications/p54#idm140194641073648
"The California Franchise Tax Board matched income records showing that he collected $40,000 of income from California companies. Not surprisingly, Bindley did not file a California tax return. That meant California’s statute of limitations would never start to run."
So should out-of-state freelancers avoid taking on any CA clients?
This isn’t because NY is a picnic but because it limits his headache to one state.
After the 83(b) election, if you fully vest all the early exercised shares in California, then move elsewhere for a year or more before selling, will California still tax the gains from that sale?
On the one hand, I'm vesting the exercised shares whilst in CA. On the other hand, I've early exercised, so there is no realized gains until I've sold. So if I leave CA, renounce all ties to CA as the article says, then sell, will CA come after me?
Is this analogous to buying a share of Google whilst a CA resident, then becoming a resident somewhere else and then selling that share of Google there? CA doesn't tax that... right?
[1] https://en.wikipedia.org/wiki/List_of_U.S._state_budgets
Pretty sure it’s that way in NJ at any rate
https://lao.ca.gov/reports/2012/tax/property-tax-primer-1129...
These prices aren't made out of saved-up paychecks. Not even for white collar jobs. They are wealth. A group of people who were in the right place at the right time, trading amongst themselves. When an uppity little worker somehow makes enough to break into their club, they take it as a reminder about how that pesky income inequality really needs fixing. Turn up the taxes on wages until he goes away. But no more taxes on our ownership. That's out of the question.
55% of housing units are owned by their occupant in California[1]. That statistic is trending up.
There are estimated to be 13.3 million housing units in California[2]. This means 7.3 million of those units are owned by their occupant(s). The adult population (>=18yo) of California is estimated to be 24.9 million[3]. So if we assume all 7.3 million owner occupied housing units have a single owner-occupant, this would mean that approximately 29% of adult Californians own their residence. This, of course, is an underestimate because many homes are owned by more than one occupant (i.e. families).
Thus, at a minimum, 1/3rd of Californians are "attaining equity through labor". Are you telling me all of these people are the moneyed, flying-over-everything capital class?
Please fact check your defeatist attitude and consider widening your gaze as to the opportunities available to you. There is no free lunch. Sacrifices and compromises must be made to achieve your goals.
[1] https://fred.stlouisfed.org/series/CAHOWN
[2] https://www.census.gov/programs-surveys/ahs/data/interactive...
[3] https://censusreporter.org/profiles/04000US06-california/
The vast majority of the value in these homes is appreciation. Having more in appreciated asset value than 90% of your neighbors could ever catch up to through wages is exactly what defines the moneyed, flying-over-everything class.
I have a home in California, btw. I was able to stretch for a 1BR condo by earning half a million a year. That is definitely not what most other homeowners did, and it's not as if the people with 2BR and 3BR have even better salaries. They have wealth.
[0] https://www.nytimes.com/2021/06/29/realestate/california-hou...
[1] https://www.nerdwallet.com/mortgages/how-much-house-can-i-af...
[2] https://dqydj.com/income-percentile-by-state-calculator/
At least you all get a break. I live in a state with relatively high property taxes (1.5%), state income tax, local income tax (both where you work, and where you live, 1.5%), school district income tax (1.5%), state sales tax (6.5%), local sales tax(1-2%), and a whole slew of special interest sales taxes (professional sports stadiums).
This is a solidly red, "we hate taxes" state too. Sometimes I wonder if I would save on taxes by moving to CA.
Is it industry taxes? Another method of income?
https://www.truthinaccounting.org/news/detail/financial-stat...
The extreme outliers are CT/IL/NJ.
If you include cities that are essentially bankrupt in CA, it's very high. Most CA cities are unviable financially.
https://www.taxpolicycenter.org/statistics/rankings-state-an...
If a state (e.g. California) is collecting and spending 50% than average on a per capita basis, it begs the question of what that money is spent on, and if there are diminishing returns in value.
And specifically for CA, what land you have passed down to you so you can benefit from prop 13.
HA! I had to laugh when I saw this. I’d love to see this argued in tax court in the modern day. It would be hysterical.
As for parental leave, could you live on $595 CAD ($472 USD) a week? That's the maximum... Not ideal in the Toronto area where the average for a 1 bedroom apartment is around $2000 CAD a month. It certainly helps a lot when you have a working spouse, but it's not enough to raise a child on your own.
It's not a worker's paradise up here. It's better than it could be though.
Unless you're referring to renting a house I suppose.
I'd consider that almost free education haha, but also I'm from Quebec, so the average is 3k per year for tuition (also why can't other province follow suit here). In any case, it's far away from a 60k tuition you can get in the US. You won't really see anything above 16k per year in Canada even for med school at the best university.
I'm also from Quebec, so for childcare you get 7$ per day, but yes it can be hard to find availability.
Honestly, I'd be happy with unpaid parental leave even, but off course I'm an engineer, so I can afford it. I think a lot of parents can afford having one at home with 500$ a month and the other working. So it's still a pretty big perk.
> It's not a worker's paradise up here. It's better than it could be though
I think that's slightly off topic, California has way better jobs for engineers, that's why I'm no longer in Canada. But job availability and pay is kind of orthogonal to taxes (unless you'd tell me the tax money goes towards attracting higher paying jobs to the state).
So the question remains, where the hell does the tax money go here? And why can't they offer as many services when the taxes are just as high, especially considering the state is way richer than any province in Canada, it seems they could afford to offer even more services than in Quebec for all that money.
What's interesting is sometimes I was too lazy to do proper math for some small sale transactions that were few days apart, so I'd round it in favor of FTB. And every year FTB would charge me as expected, and then send me a check for $20, $50 or whatever, presumably because of that.
In short, I'm pretty sure FTB knows everything about you and your CA taxes :)
Also based on reading the publications myself (disclaimer: IANAL), I'm pretty sure unless you actually work/live in CA, or have delayed income based in CA, you are not generally supposed to pay CA taxes.
On the plus side, America accepts dual citizenship and Germany(where I’m from) accepts not, unless I apply for a special permit to retain German citizenship before acquiring another citizenship.
> Notify friends and family of permanent move out of California
Make sure to send it certified mail, return receipt requested and save the records!
It amounted to only like $40 and I was afraid it'd cost way more to fight so I just paid it, even though it was a completly fabricated tax bill. Today I'd fight it just on principle but I was too poor then and couldn't afford to talk to a CPA or lawyer.
Does it help that the employer has offices in 2 other states?
https://www.cbsnews.com/news/supreme-court-wont-allow-new-ha...
1. I don't enjoy filing state income tax(I'm a Texan) at all.
2. I have to get 13% higher pay comparing to what I earn in TX which CA-recruiters did not like it much at times. The 13% is to cover CA's state income tax.Why are recruiters negotiating with you about whether or not 13% is a far increase for being in CA? To me it seems like the high end for comp in Silicon Valley is much higher than the high end for comp in Texas. And 10-20% salary adjustment for an internal move between a MCOL city and Silicon Valley seems normal.
I don't know your situation, but a 15% bump for working in CA sounds cheap in general.
Unless you're talking about doing on-site jobs.
Not anymore. Washington now has a 7% capital gains tax.
The thing that gets me about WA are the insane liquor taxes(and higher base prices as well for some reason). OR isn't too far away though, and they seem to have reasonable prices despite the state liquor monopoly.
They also snuck in a way for current residents to get out of paying the 0.6% LTC tax if you were heads up enough about already getting LTC insurance earlier this year, but anyone moving here after Oct 2021 is screwed.
Wage earners do have the worst circumstance. The slowest and highest taxed way of getting money and it has a general ceiling. And they don’t have access to half of their earned capital that year to even attempt doing anything with it, Yuck. There is still a lot they can do.
Sure, you want to move and do so (or don’t want to but have to for some reason). You’re fine.
This whole post is about wanting to get the benefits of being in california (9 months a year wtf) but not pay for it.
And in the end, california taxes overall…are pretty average.
Err, no - no they aren’t. By most accounts, it’s the highest or in the top 2-3 in the nation, and not by a little.
California has the highest income tax, the highest capital gains tax, and the highest state sales tax. The only common tax rate in CA that’s even close to average is property tax.
[1] https://worldpopulationreview.com/state-rankings/highest-tax...
It is not useful to consider top tax rates for every state unless you are in the top tax rate income bands for every state.
In the case of california, the state happens to collect a disproportionate amount from cap gains which helped in 2020 and caused a crisis in 2008. Also spending is higher per capita in the less densely settled (and predominantly Republican) portions of the state (most of it if you look at a political map) simply because the infrastructure is thinner and more critical and social services are more expensive to provide.
The readers of this site being merely the upwardly mobile and not the elite, they can only try to do this with state boundaries, not national ones.