A TEMPORARY AND TRANSITORY VISIT
WITH CALIFORNIA RESIDENCY
Charles P. Rettig
Hochman, Salkin, Rettig, Toscher, and Perez, P.C.
© 1997 All Rights Reserved
Issues regarding residency are relevant in many different legal arenas, including
probate proceedings, voter registration, marital dissolutions, education, property tax
determinations, and income taxes. Many individuals believe they are not California
residents for income tax purposes on the basis that they spend significant amounts of time
or maintain homes in other states or countries. Unfortunately, these individuals are
mistaken and may be surprised.
The theory behind California residency for tax purposes is to define the class of
individuals who should contribute to the support of California because they are physically
present in California and/or receive substantial benefits and protections from its laws
and government.(1) On the other hand, individuals
present in California for a mere "temporary or transitory purpose" do not
generally avail themselves of the benefits of residency and should not be considered
residents for income tax purposes. However, the line of demarcation is not clear and tax
collectors rarely meet an individual they don't want to call neighbor.
Although Franchise Tax Board Auditors do not hang around the airports with their hands
out, they have been known to canvass Beverly Hills, Palm Springs, and Lake Tahoe in an
effort to identify potential (involuntary) donors to the California treasury. Determining
whether an individual is a resident of California for income tax purposes is significant
because California residents are taxable on their world-wide income, including income from
sources outside California. Non-residents of California, are only taxed on income from
California source, while part-year residents are taxable on their world-wide income while
a resident of California, and only on income from California sources while a non-resident.(2)
For tax purposes, there are various rules for determining the source, allocation and
apportionment of gross income.(3) However, the
following items are clearly from sources within California:
(1) Income and gains from real or tangible personal property located in California;
(2) Income from a business, trade, or profession entirely conducted within California;
(3) Compensation for personal services performed in California;
(4) Income from intangible personal property having a business or taxable situs in
(5) Rents or royalties for the use of, or for the privilege of using patents, copyrights,
secret processes, formulas, goodwill, etc. in California with a business or taxable situs
California will not be satisfied by merely taxing California-source income if the
individual has substantial non-California-source income, e.g., interest or
dividends from their investments or income from out-of-state business activities -- if the
individual is enjoying the benefits of California. Accordingly, individuals present in
California for any significant period of time must be careful not to become a
"resident" for income tax purposes.
Resident. In California, the term "resident" was
originally defined for income tax purposes in the Personal Income Tax Act of 1935
(effective June 13, 1935),(5) which was the
enabling legislation enacted pursuant to Constitutional authority(6)
that first established the California Personal Income Tax. Section 2(k) of the Personal
Income Tax Act of 1935 defined a "resident" as follows:
"The word 'resident' includes every natural person domiciled in the State of
California and every other natural person who maintains a permanent place of abode within
this State or spends in the aggregate more than six months of the taxable year within this
Article 2(k)-2 of the Regulations (the California Administrative Code) promulgated by
the Franchise Tax Board set forth a definition of "domicile" under the Personal
Income Tax Act of 1935, as follows:
"Domicile has been defined as the place where an individual has his true, fixed,
permanent home and principal establishment and to which place he has, whenever he is
absent, the intention of returning. It is the place in which a man has voluntarily fixed
the habitation of himself and his family, not for a mere special or temporary purpose, but
with the present intention of making a permanent home, until some unexpected event shall
occur to induce him to adopt some other permanent home . . ."
As initially enacted, the statutory concept of residency encompassed every individual
having a physical residence in California or every individual physically present in
California for more than six months during the taxable year. The purpose of an
individual's presence in California was generally irrelevant.
Based on an increasingly mobile society, the definition of a "resident" for
California income tax purposes was substantially modified in 1937 as an attempt to ensure
that all persons who are in California, for other than a temporary or transitory purpose,
contribute to the support of the State.(7) As
amended in 1937, Section 2(k) of the Personal Income Tax Act defined the term
"resident" as follows:
"Every natural person who is in the State of California for other than a temporary or
transitory purpose is a resident and every natural person domiciled within this State is a
resident, unless he is a resident within the meaning of that term as herein defined of
some other state, territory, or country. . . . Every natural person who
spends in the aggregate more than nine months of the taxable year within this State or
maintains a permanent place of abode within this State shall be presumed to be a resident.
The presumption may be overcome by satisfactory evidence that such person is in the State
for a temporary or transitory purpose. . . ."
Presently, the statutory concept of a "resident" includes any individual who is:
(a) in California for other than a "temporary or transitory purpose," or (b)
domiciled in California, but physically located outside California for a "temporary
or transitory purpose."(8) The meaning of
"temporary or transitory purpose" depends upon the facts and circumstances of
each particular case, although it generally encompasses individuals physically present
within the State for a particular purpose of a specified duration.(9) A "part-year resident" is any
individual who is a California resident for part of the year and a non-resident for part
of the year. The term "non-resident" includes every individual other than a
resident.(10) A California resident continues to
be a resident even though absent from the State on a temporary or transitory basis.(11)
The term "domicile" has remained substantially unchanged -- it is the place
where an individual has their true, fixed, permanent home and principal establishment and
to which they have the intention of returning whenever they are physically
present elsewhere.(12) The concept of domicile
requires both physical presence in a particular place and the intention to make that place
one's home. At birth, a child is assigned a domicile of origin,(13)
and they retain that domicile until they acquire one elsewhere.(14)
An individual can only have one domicile. Once a domicile is acquired, it is retained
until another is thereafter acquired. A new domicile is acquired by an actual change of
residence accompanied by the intention to either remain permanently or for an indefinite
period of time without any fixed or certain purpose to return to the former place of abode
and in determining the individual's intention, their acts and declarations must be
considered.(15) An individual's actions must
clearly demonstrate a current intention to abandon an old domicile and establish a new
The distinction between "domicile" and "residence" is important. An
individual may be a resident, although not domiciled in California, and, conversely, may
be domiciled in California without being a resident.(17)
For example, a Nevada domiciliary accepting a job assignment in California expected to
last for a long, indefinite duration will be considered a California resident. Similarly,
a California domiciliary accepting a job assignment in Nevada expected to last for a long,
indefinite duration will not be considered a California resident because he is out of the
state for other than a "temporary transitory" purpose.
Issues regarding domicile are often difficult to resolve since they involve a
determination of an individual's subjective intent. As a result, most income tax disputes
center around issues involving residency -- whether the individual is present within
or absent from California for a "temporary or transitory purpose." Many
residency disputes involve individuals claiming to be residents of states that do not have
an income tax -- Nevada, Florida, Texas, Alaska, etc. -- even though there are limited
contacts with the other state.
Residency Presumptions. There is a rebuttable presumption that
individuals physically present within California for less than six months during
the taxable year (who are domiciled outside California and maintain a personal residence
outside California) will not be considered California residents provided they do not
engage in any activity or conduct within California other than that of a seasonable
visitor, tourist or guest.(18) Similarly, there
is a rebuttable presumption that individuals physically present within California for more
than nine months during the taxable year are California residents.(19)
These presumptions are not conclusive and may be overcome by evidence that physical
presence in California, even if for more than nine months during the taxable year, was
merely for a temporary or transitory purpose. "The language of the statute
establishes that the length of time a person is in California does not . . .
compel a determination that he has acquired residence [in California]."(20) Clearly a person who stays for more than six
months of the year, but less than nine months "may be considered as being in the
State for a temporary or transitory purpose."(21)
Further, an individual may be deemed a seasonal visitor, tourist or guest even though they
own or maintain a physical residence in California, join local social clubs, or have a
bank account in California for the purpose of paying personal expenses.(22)
Time spent in California is only one factor to be considered as an indication of the
purpose of the visit.(23) For tax purposes, a
residency determination depends upon an overall determination of the individual's
"closest connections" during the taxable year.(24)
The state with which an individual has the closest connections during the taxable year is
typically their state of residence.(25) The
contacts/connections which a taxpayer maintains in California and other states are
important objective indications of whether presence in or absence from California is a for
a "temporary or transitory purpose." Such connections are important both as a
measure of the benefits and protections which the taxpayer received from the laws and
government of California, and also as an objective indication of whether the taxpayer
entered or left the State for temporary or transitory purposes.(26)
It must be determined whether connections with a state were maintained in readiness for
the taxpayer's return.(27) However, retention of
certain contacts such as bank accounts, driver's licenses, professionals, etc. may only be
a reflection of the taxpayer's past and may not be inconsistent with an absence for other
than a temporary or transitory purpose.(28)
If an individual is simply passing through California on their way to another state or
country, or is in California for a brief rest or vacation, or to complete a particular
transaction, or to perform a particular contract, or to fulfill a particular engagement,
which will require their presence in the State for a brief period of limited duration, the
individual is deemed to be present in California for a "temporary or transitory
purpose" and will not be deemed a resident by virtue of their physical presence
within the State of California.(29) However,
individuals present in California for an indefinite duration, such as to improve
their health, or for a business purpose requiring a long period to accomplish, or employed
in a position that may last permanently or indefinitely, or individuals arriving in
California with no definite intention of departing shortly thereafter, are deemed present
in California for other than a temporary or transitory purpose, and will be deemed
residents taxable upon their world-wide income, even though they may retain their domicile
in some other state or country.(30)
Limited Safe Harbor. Historically, employment related absences
from California for as long as 12, 15, 19, or 22 months have been considered
"temporary" absences of relatively short duration.(31)
Taxpayers have even been deemed California residents during overseas employment that
lasted as long as three years.(32) Conversely,
an individual was determined to be "temporarily" in California even though
present for more than nine months during the year since they resided in a hotel on a
weekly basis and their departure was delayed because of illness and a studio strike.(33)
Where a California domiciliary is employed outside the State, they have generally been
considered absent for other than a temporary or transitory purpose if the job position is
expected to last for a long, permanent, or indefinite period of substantial duration.(34) The fact that a foreign assignment ended
sooner than expected did not require a conclusion that the assignment was for a temporary
or transitory purpose.(35) A permanent departure
is not required. However, the individual had to demonstrate that they were absent for
other than a "temporary or transitory purpose."(36)
A degree of certainty was established by legislation enacted in 1994 providing that
California domiciliaries absent from California for an uninterrupted period of at least 18
consecutive months (546 consecutive days) under an employment-related contract would be
considered outside the State for a purpose that is not "temporary or transitory"
(thereby resulting in the individual being a non-resident).(37)
However, this "safe harbor" specifically excludes individuals (and their
spouses) domiciled in the State of California required to relocate outside California as a
result of obtaining certain federal government elective or appointed positions.(38) Under the "safe harbor," the
individual is allowed to return to California for no more than 45 days during any taxable
year. However, the "safe harbor" exception does not apply if the individual has
income from intangibles (stocks, bonds, notes, etc.) in excess of $200,000 during the
taxable year or if the principal reason for the absence from California is to avoid
personal income tax.(39)
Administrative Review. Since 1935, issues relating to residency
and domicile have been extensively contested by taxpayers. The first appeal to the State
Board of Equalization was heard in 1942 and pertained to tax year 1935.(40) Determinations by the Franchise Tax Board
regarding a taxpayer's income tax liability are presumptively correct,(41) and this presumption of correctness also
attaches to a Franchise Tax Board determination of residency status.(42) As such, a taxpayer has the burden of proving
the erroneous nature of the Franchise Tax Board's residency determination.(43) With respect to domicile, the burden of proof
is on the party asserting a change of domicile.(44)
The presumption of correctness is rebuttable and supports a finding only in the absence of
sufficient evidence to the contrary.(45) Once
evidence of residency that would support a contrary finding has been submitted, the
presumption of correctness disappears.(46) The
burden of proof will not generally be satisfied based on unsupported, arguably
Credible evidence substantiating the contentions must be presented.(48)
When the issue of residency arises, the Franchise Tax Board will thoroughly review and
evaluate what it perceives to be the relevant contacts with the State of California and
other states. There will be a special emphasis on California contacts. It is not
sufficient to merely balance contacts with the State of California and to aggregate
contacts with states other than California. It must be demonstrated that an individual is
a "resident" of some other state or country. It is not generally sufficient to
demonstrate that the individual was not physically present in California for a specified
period of time. In fact, minor contacts with California may become more significant if the
individual is unable to demonstrate that there are more significant contacts with any
other particular state or country.
The most significant contacts tend to include actual physical presence of the taxpayer
during the taxable year, the location of the family home, the location of various business
interests, and the location of the individual's family (although spouses need not have the
same residency status). Even though an individual may not be a California resident, their
spouse and minor children may be residents, if they are present in California for other
than a temporary or transitory purpose. The Franchise Tax Board will review and determine
the employment status of the individual, the location and activity in California bank and
brokerage accounts, whether the individual's minor children attend school in California,
whether older children are attending school in California universities on the basis of
being deemed residents of the State of California, voter's registration certificates,
whether the individual files resident or non-resident tax returns in another state or
country, whether the individual claimed the California homeowner's property tax exemption
or renter's credit with respect to a California residence, the location of medical, legal,
and business professionals engaged on behalf of the individual, registration of vehicles,
planes, or boats belonging to the individual, the state where the individual's driver's
license is issued, the state where the individual's professional and business licenses are
issued, the state where the individual belongs to social, athletic, or religious
organizations, membership in labor unions within the state, a listing in a telephone
directory within the state, the location of the individual's cemetery plot, and other
relevant contacts. No single contact is determinative.
In any residency determination, it is particularly relevant to determine whether the
individual substantially severed their contacts upon departure from a state and took steps
to establish a significant connection with their new state of residency. It should be
anticipated that the Franchise Tax Board will attempt to determine whether an individual
arguably departing California maintained their California contacts with a view toward
ultimately returning to the State -- a finding likely to lead to an administrative
determination that the individual remained a California domiciliary, even though
physically present outside the State of California for a significant period of time.
However, the mere fact that an individual owns a home, maintains a bank account, or is a
member in social clubs located in California should not automatically result in a
determination of California residency.(49) All
relevant contacts will be evaluated to determine the individual's actual domicile and
residency status. Unfortunately, there are no clear guidelines for this determination.
Frequently, administrative determinations that a taxpayer is domiciled in California lead
to the conclusion that their absence from the State is for a temporary or transitory
purpose. Similarly, determinations that an individual is domiciled outside California
frequently involve a conclusion that the individual's presence in the State of California
is for other than a temporary or transitory purpose. Each conclusion leads to a
determination that the individual is subject to taxation by the State of California on
their world-wide income. These conclusions are often based on the fact that the absent
party maintained contacts with California while away and that the party located in
California arrived in California for an indefinite period of time.
To avoid a potentially adverse determination, individuals departing California should
sever all connections with the State, physically leave the State, and clearly set forth
their subjective intent to never return. Although it may be unreasonable to expect
California domiciliaries to sever all of their California connections, failure to
relinquish significant contacts with the State of California will increase the risk of
being taxed as a resident during the period of their absence from California.
If an audit arises, it should be anticipated that the Franchise Tax Board will contact
the individual's neighbors and business associates in an effort to determine the
individual's physical presence within the State of California. Although mere time spent
within the State of California is not determinative, the amount of time within California
significantly influences the administrative determination of the individual's residency
status. A significant amount of information regarding physical presence is often derived
from interviews of neighbors and business associates, credit card receipts and canceled
checks. The use of credit cards or checks within the State of California typically places
an individual at a particular location at a particular point of time.
If an individual claims to have a residence or business located outside the State of
California, it should be anticipated that the Franchise Tax Board will actually visit the
out-of-state locations and contact neighbors and business associates in that location.
There will also be a search of courthouse records for information or statements as to an
individual's residency status set forth in any proceedings involving a marital
dissolution, probate, or other litigation.
If the issue concerning a taxpayer's residency status is unclear, to avoid possible
penalties, filing of a non-resident return reporting California-source income should be
considered even though the taxpayer believes they are not a California resident.(50) Filing of a non-resident return will commence
the applicable statute of limitations on assessment of a tax deficiency. If a return is
not filed, the individual will remain exposed to the residency issue forever.(51) The return might be accompanied by a statement
setting forth the reasons why the taxpayer is not a resident and any evidence in support
of the taxpayer's assertion of non-residency.
Residency disputes are often not administratively resolved for an extended period of
time. Basic residency audits often take at least a year to conclude while information is
being gathered and coordinated. If a dispute remains, the individual must then timely
protest the Notice of Proposed Assessment and will request an informal hearing within the
Franchise Tax Board. If the issue remains unresolved, the individual must timely file an
appeal to the State Board of Equalization. Sometimes the administrative processes can be
curtailed by submission of a settlement proposal to the Franchise Tax Board Settlement
Bureau on the basis of the relative "hazards of litigation" involved.(52)
Following the exhaustion of the foregoing administrative processes without a meaningful
resolution, an individual may timely commence an action in the Superior Court of any
county where the California Attorney General maintains an office -- Sacramento, Los
Angeles, or San Francisco -- without first being required to satisfy the disputed
liability.(53) No collection action may be taken
while the suit is pending. This is a statutory exception to the general rule in other
civil tax disputes, where the taxpayer must pay the tax liability at the conclusion of the
administrative processes before commencing Superior Court litigation.
It is not unusual for the Franchise Tax Board to consider a jeopardy assessment if it is
able to determine that an individual is removing assets from California in the face of a
potential residency determination. The Franchise Tax Board is authorized to issue a
jeopardy assessment and seek immediate collection of the amount in dispute if it
determines that the assessment and collection of the tax may be jeopardized by delay.(54) A finding of jeopardy is presumptively correct
in subsequent proceedings. If a jeopardy assessment is involved in a residency dispute, a
tax practitioner should consider the motivations behind the jeopardy (was it improperly
asserted to circumvent the taxpayer's ability to contest the residency determination
without having to satisfy the tax liability?).
The determination of an individual's residency status (if domiciled outside California)
or domicile (if physically present outside California) depends upon application of the
phrase "temporary or transitory purpose". Unfortunately, as with other
determinations based upon a factual analysis (independent contractor/employee, etc.), this
phrase has often been interpreted in an inconsistent and arbitrary manner. Whether a
taxpayer's purpose in entering or leaving California is temporary or transitory in
character, is a question of fact to be determined by examining all of the circumstances of
each particular case.(55) In situations where
the taxpayer has significant contacts with more than one state, the state with the closest
connections during the taxable year will be considered the state of their residence.(56) Individuals maintaining a significant personal
and business presence in several states, including California, will remain exposed to a
potentially arbitrary residency determination.
Tax practitioners cannot provide total comfort to their departing clients unless
substantially every contact with the State of California has been relinquished. Similarly,
snowbirds migrating to a warmer California climate must limit their time and California
contacts. Merely balancing the relative contacts or the amount of time spent outside the
State of California will not be determinative.(57)
If an individual accepts out-of-state employment of a limited duration, the Franchise Tax
Board will likely assert that the individual retained their status as a California
domiciliary and was merely absent from the State on a temporary or transitory basis.
Individuals intending to depart from California should do so under circumstances
establishing that their departure is for a lengthy or indefinite duration. Individuals
retaining any contacts or having any presence in California will be exposed to a
potentially arbitrary residency determination. Unfortunately, after more than 60 years
experience, residency determinations still remain unpredictable. Howdy neighbor.
1. Regulation § 17014(a); Whittell v. Franchise Tax Board,
231 Cal. App. 2d 278 (1964).
2. Revenue & Taxation Code §§ 17041, 17056, 17301-17303, and
17310; Cal. Admin. Code, Title 18, Regulations ("Regulations") §§ 17014
and 17951-1, et seq.
3. Revenue & Taxation Code § 17951, et seq.
4. Regulation §§ 17951 and 17952.
5. 1935 Cal. Stat. Ch. 329, § 1, at 329.
6. Cal. Const. art. XVIII, § 26(a). The Personal Income Tax
Law is administered by the Franchise Tax Board which has broad powers to issue
non-retroactive regulations prescribing the application of the Income Tax Law and is
authorized to examine personal income tax returns and to determine the amount of tax due.
The Franchise Tax Board is composed of the State Controller, the Director of the
Department of Finance, and the Chairman of the State Board of Equalization. Cal. Gov't
Code § 15700, et seq.
7. Traynor and Keesling, The Scope and Nature of the California
Income Tax, 29 Cal. L. Rev. 706, 719.
8. Revenue & Taxation Code § 17014(a); Regulation § 17014.
9. Regulation § 17014(b).
10. Revenue & Taxation Code § 17015; Regulation § 17014.
11. Revenue & Taxation Code § 17014(c); Regulation
12. Regulation § 17014(c).
13. Gates v. Commissioner, 199 F.2d 291, 294 (10th Cir.
14. In re Marriage of Leff, 25 Cal. App. 3d 630, 102 Cal.
Rptr. 195 (1972).
15. Regulation § 17014(c); Estate of Phillips, 269 Cal.
App. 2d 656, 659; 75 Cal. Rptr. 301 (1969).
16. Chapman v. Superior Court, 162 Cal. App. 2d 421,
426-427; 328 P.2d 23 (1958).
17. Appeal of Harrison, Cal. St. Bd. of Equal., 6/25/95.
18. Regulation § 17014(b).
19. Revenue & Taxation Code § 17016; Regulation
20. Klemp v. Franchise Tax Board, 45 Cal. App. 3d 870, 119
Cal. Rptr. 821 (1975),
21. Klemp, supra.
22. Whittell v. Franchise Tax Board, 231 Cal. App. 2d 278,
41 Cal. Rptr. 673 (1964); Klemp, supra; Corbett v. Franchise Tax Board,
23. Klemp, supra.
24. Regulation § 17014(b).
25. Appeal of Hardman, Cal. St. Bd. of Equal., 8/19/75.
26. Appeal of Zupanovich, Cal. St. Bd. of Equal., 1/6/76; Appeal
of Broadhurst, Cal. St. Bd. of Equal., 4/4/76.
27. Appeal of Hardman, Cal. St. Bd. of Equal., 8/19/75.
28. Appeal of Hardman, supra.
29. Regulation § 17014(b).
30. Regulation § 17014(b).
31. Appeal of Tarring, 4 SBE 51 (11/18/87); Appeal of
Hauber, Cal. St. Bd. of Equal., 11/6/85; Appeal of Harding, Cal. St. Bd. of
Equal., 2/4/86; Appeal of Boehme, Cal. St. Bd. of Equal., 11/6/85.
32. Appeal of Huran, Cal. St. Bd. of Equal., 1/8/68; Appeal
of Zupanovich, Cal. St. Bd. of Equal., 1/6/76.
33. Appeal of Woolley, Cal. St. Bd. of Equal., 7/19/51.
34. Appeal of Zupanovich, supra.
35. Appeal of Egeberg, Cal. St. Bd. of Equal., 7/30/85.
36. Appeal of Fox, Cal. St. Bd. of Equal., 4/9/86.
37. Revenue & Taxation Code § 17014(d).
38. Revenue & Taxation Code § 17014(b).
39. Revenue & Taxation Code § 17014(d).
40. Appeal of W.S. Charnley, Cal. St. Bd. of Equal.,
41. Todd v. McColgan, 89 Cal. App. 2d 509 (1949); Appeal
of Morgan, Cal. St. Bd. of Equal., 7/30/85.
42. Appeal of Misskelley, Cal. St. Bd. of Equal., 5/8/84.
43. Appeal of Robert F. and Helen R. Adickes, 90-SBE-012,
11/17/90; Appeal of Robert J. Addington, Jr., Cal. St. Bd. of Equal., 1/5/82; Todd
v. McColgan, 89 Cal. App. 2d 509; 201 P.2d 414 (1949).
44. Sheeham v. Scott, 145 Cal. 684, 79 P.350 (1905); Appeal
of Terance and Brenda Harrison, Cal. St. Bd. of Equal., 6/25/85.
45. Appeal of Fox, Cal. St. Bd. of Equal., 4/9/86; Rockwell
v. Commonwealth, 512 F.2d 882 (9th Cir. 1975).
46. Appeal of Misskelley, Cal. St. Bd of Equal., 5/8/84; Appeal
of Webber, Cal. St. Bd. of Equal., 10/6/76.
47. Appeal of Gum, Cal. St. Bd. of Equal., 3/31/82.
48. Appeal of Seltzer, Cal. St. Bd. of Equal., 11/18/80.
49. Regulation § 17014(b).
50. Regulation § 17014(d)(2).
51. Revenue & Taxation Code § 19057.
52. Revenue & Taxation Code § 19442.
53. Revenue & Taxation Code § 19081; Cal. Code of Civ.
Proc. § 1060.5.
54. Revenue & Taxation Code § 19081.
55. Appeal of Gabrik, Cal. St. Bd. of Equal., 2/4/86.
56. Regulation § 17014(b).
57. Appeal of Thomas, Cal. St. Bd. of Equal., 4/5/83; Appeal
of Loebner, Cal. St. Bd. of Equal., 2/28/84; Appeal of Stefani, Cal. St. Bd. of