Last week, the California Office of Tax Appeals (OTA) issued a decision stating that a person who traveled between California and Florida is considered a California resident and domiciled in California. In the Appeal of S. Ferreira, OTA Case No. 230814036 (November 15, 2024), the central issue was whether the appellant, who claimed to be a Florida resident and worked in Florida, was also a domiciliary and resident of California during the 2018 tax year. The OTA held that despite some connection to Florida, the appellant was a California resident because he maintained strong ties to California, including using a California address for tax documents.

Facts

The appellant filed a California resident income tax return for 2018, reporting a subtraction for wages earned from a Florida-based employer, but listed a Los Angeles address on the return (his 2017 resident return similarly listed Los Angeles as his address). The California Franchise Tax Board (FTB) disallowed the subtraction for 2018, asserting that the appellant remained a California resident and, therefore, their entire taxable income was subject to California tax. The appellant contended that he was a California resident from January 1, 2017 to July 31, 2017, and then moved to Florida, becoming a Florida resident on August 1, 2017. The appellant protested the FTB’s findings, claiming he had returned to California only on December 1, 2018 and had lived and worked in Florida prior to that year (on appeal, appellant contended he moved from Florida to California on September 1, 2018 and did not work in California until 2019).

As a purported nonresident of California in 2018, the appellant asserted that the earned wages, which were earned for work performed in Florida, were not subject to California tax.

The OTA disagreed and sided with the FTB. The OTA pointed out, among other factors, that although the appellant had filed a 2017 nonresident tax return stating he was a Florida resident, the appellant used a California mailing address during both 2017 and 2018. During appeal, the FTB argued that the appellant had not sufficiently demonstrated a change in domicile to Florida, and thus continued to be a California domiciliary in 2018. The OTA’s ruling emphasized that to change domicile, an individual must physically reside in another location with the intent to remain there permanently (citing Appeal of Beckwith, 2022-OTA-332P, citing Whittell v. FTB (1964) 231 Cal.App.2d 278, 284). Since the appellant maintained strong ties to California, including using a California address for tax documents, the appeal was denied.

OTA Ruling

In making its ruling, the OTA noted factors that went against the appellant:

• Appellant did not provide any evidence such as real estate records, rental records, and or/third-party declarations demonstrating that the appellant took up actual, physical residence in Florida.
• Appellant did not provide any documents to demonstrate that he intended to make a permanent home in Florida.
• Appellant did not provide evidence that he severed any ties within California.
• Appellant continued to use a Long Beach, California address in receiving mail.
• Appellant continued to use a Long Beach, California address on multiple 2018 tax documents, including Forms W-2 and 1099-R.
• Appellant did not submit any evidence that he was physically in Florida performing services outside of California.

Regarding the last point, it is important to note that the OTA explicitly stated that even if the appellant had provided such evidence, absences for employment reasons typically do not suggest that a person is outside of California for anything other than a temporary or transitory purpose, particularly if connections with California are not severed or significant new ties are not established elsewhere. The OTA also noted that, although the appellant’s 2017 California nonresident return claimed Florida residency as of August 1, 2017, citing to Bruno v. Commissioner, T.C. Memo 1990-109, “tax returns are not proof of the statements made therein.”

Implications for California Taxpayers Seeking to Give Up Residency Status

The case highlights the importance of proving domicile through physical presence and intent, with the burden of proof resting on the taxpayer (Appeal of Mazer, 2020-OTA-263P). California residents looking to change their residency should be prepared to substantiate both their relocation and the severance of ties with California. Relinquishing California residency status is not as simple as packing up and leaving to another state. Taxpayers must be able to prove to the FTB that they intended to relocate and relocated permanently.

The FTB looks to objective factors to determine residency and connections with California. What factors can the FTB consider? Here is an overview that lists a few factors:

• Amount of time one spends in California versus amount of time one spends outside California.
• Location of spouse/RDP and children.
• Location of principal residence.
• State that issued driver’s license.
• State where vehicles are registered.
• State where one maintains their professional licenses.
• State where one is registered to vote.
• Location of the banks where one maintain accounts.
• The origination point of one’s financial transactions.
• Location of medical professionals and other healthcare providers (doctors, dentists, etc.), accountants, and attorneys.
• Location of one’s social ties, such as their place of worship, professional associations, or social and country clubs of which one is a member.
• Location of one’s real property and investments.
• Permanence of one’s work assignments in California.

However, be wary as this list is not exhaustive and is merely provided to serve as a guide. The FTB’s published guidance explicitly states that this is only a partial list of the factors to consider and cautions against relying on these factors alone. Thus, it is possible that even after putatively departing taxpayers have packed their belongings, purchased a new home in another state, and moved their family across state lines, they may still end up with a residency audit and a corresponding tax bill (along with penalties and interests) from the FTB. To make matters worse, if one owes California tax and never files a non-resident tax return, the FTB may have unlimited time to move forward with an audit.

Thus, when it comes to properly severing ties with California, it is critical to examine the entire picture of a particular taxpayer’s situation to insulate against potential risks. It is best practice to work with a legal professional to advise on your move and provide guidance on your particular facts. For questions on California residency issues or help with a California residency audit, contact the Hanson Bridgett Tax Group for assistance.