ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHAT DOES DOMICILE MEAN? HOW DO YOU LEGALLY CHANGE YOUR DOMICILE TO AVOID CALIFORNIA TAXES?
By Robert S. Schriebman
I get calls from folks all over the country. Some ask me questions about the statute of limitations for collection on old tax debts and some ask questions about whether or not they have to pay California income taxes when they are earning money in another state or country. There is a great deal of confusion between the concept of residency and that of domicile. The recent case of Matthew Donavon helps to shed some light on this confusion and offer guidance on the difference between residing outside of California vs being domiciled outside of California. (OTA Case No. 19034531, February 13, 2020).
In this article I will review the Donavon case and discuss the difference between residency and domicile. Donavan moved away from California and thought he was domiciled in Florida. The Office of Tax Appeals (OTA) held that he remained a California resident and had to pay the FTB taxes on the wages he received in Florida. I will conclude the discussion with pointers on what you need to do to establish a true domicile, thus avoiding to having pay the FTB.
The Donavon Case
Matthew Donavon lived in California for several years prior to receiving a job offer in Florida in 2014. He moved to Florida and stayed there for 5 months, working for his new employer. He then got a new job offer, quit his employer, and moved back to California. When he filed his 2014 FTB return, he omitted 5 months of wages earned while living in Florida. The FTB assessed him for income taxes on the 5 months income, and Donavon appealed to the OTA. He lost.
Pursuant to R&TC § 17041 California income tax is imposed on the entire taxable income of residents. The term “resident” is defined as (1) every individual who is in the state for other than a temporary or transitory purpose (2) every individual domiciled in this state who is outside the state for a temporary or transitory purpose. The term “domicile” refers to one’s permanent home; a place he/she intends to reside indefinitely. A person can have many residences, but only one domicile at a time.
During the OTA hearing, Donavon simply made an unsupported assertion that he was domiciled in Florida for those 5 months. He offered no proof that he did anything affirmative to establish Florida as a place where he intended to remain indefinitely. If you are domiciled outside of California, you do not have to pay income taxes to the FTB for any income received where you are domiciled.
What Does It Take to Establish Domicile?
To be domiciled somewhere you must have proof that your new location is permanent. Permanent does not mean forever; it means indefinitely. You should obtain a driver’s license, register to vote, and have utilities bills in your new location. You should also have at least one bank account, preferably with a local bank and not a national chain, such Bank of America, Chase or Wells Fargo. Change the license plates on your car to your new state.
Matthew Donavon lost his case before the OTA because he had no documentary evidence showing the establishment of any permanency. Register to vote, get a new driver’s license, and open a bank account. Those are the minimum requirements to prove that you are indeed domiciled out of California.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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