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Ask The EDD Attorney – Why Are The Issues Of Domicile And Residence So Important For California Income Tax Purposes? Part 2

By Robert S. Schriebman

This is Part 2 of a three-part series that will discuss the importance of the issues of domicile and residence for California income tax purposes. Perhaps more has been written by the Board of Equalization (BOE) and the courts over these issues than any other issue of California taxation.

In Part 1, we discussed the recent BOE Harrison decision issued on April 30, 2014. We reviewed two key statutes of the California Revenue and Taxation Code (R&T Code §§ 17014 and 17041), and relevant California BOE cases dealing with domicile and residence.

A Brief Review of the Harrison Case

Mason Harrison filed an assessment appeal with the BOE challenging an FTB assessment on his 2008 person income tax return. He was working for the McCain presidential campaign in California during the first half of 2008. His boss offered him the position of running the McCain campaign in Oregon. Mason took the job and moved all of his possessions to Oregon. He signed a lease for the second half of 2008. He activated utilities and changed his credit card account to his new address. However, he continued to register his car in California, and he did not obtain an Oregon driver’s license. When the McCain campaign was over Mason tried to find work in Oregon during 2009, but could not find gainful employment. His former boss offered him a job in California. Mason took the job and moved all of his possessions back to California.

The primary issue for the BOE to decide was whether Mason had become domiciled in Oregon as opposed to merely residing in Oregon temporarily.

In this Part 2, we will review definitions of “domicile” and “residency.” We will discuss why domicile is important. Finally, we will discuss how someone is taxed who is deemed domiciled in California but who receives taxable income while residing outside of California temporarily.

Definitions of Domicile and Residency

Is domicile defined in the California R&T Code? Not really. Is residency defined? Maybe.

R&T Code § 17014(a) defines “resident” to include the following:

  1. Every individual who is in this 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.

Black’s Law Dictionary, the standard used in the legal profession, defines domicile as follows: “That place where a man has his true, fixed, permanent home and principal establishment, to which whenever he is absent he has the intention of returning . . . the permanent residence of a person or the place to which he intends to return even though he may actually reside elsewhere. A person may have more than one residence but only one domicile.”

The Oxford English Dictionary (OED) defines domicile, in law, as “the place where one has his home or permanent residence, to which, if absent, he has the intention of returning.”

Why is Domicile Important?

Domicile is important because California can tax your income earned while you are domiciled in California but residing elsewhere and you earned your taxable income in that out of California residence. The reason for this is that you are only temporarily living (residing) outside of California. In order to escape California taxation you must be living outside of California permanently or indefinitely.

Juggling Vague Terms

At the BOE, everyone seems to throw around vague terms when arguing or deciding the taxability of income earned or received outside of California. BOE attorneys, attorneys representing taxpayers, and the BOE use “domicile,” “residency,” “indefinite,” “temporary,” and “transitory” interchangeably and synonymously. It looks like of a version of “Who’s On First” with Abbot and Costello. You will get more of a feeling for this in the BOE sample cases discussed below.

Examples of BOE Cases Dealing With The Issue Of Domicile

The Harrison case deals with a taxpayer who has left California for reasons of employment. The BOE has generally found that absences for reason of employment do not establish a change of domicile. A prime example is a professional athlete who spends a majority of each year out of California. The BOE usually sustains the FTB’s determination of California domicile. (Fernandez 71-SBE-016, June 2, 1971).

  • Appeal of Robert J. Addington, Jr. (82-SBE-001, Jan 5, 1982)
    Addington left California to take a job in England that would last between two and three years. He left his father to tend to his business and an acquaintance to stay in his home in California. The BOE found that Addington, though away for at least two years, had a definite intention to return to California. The BOE determined that Addington maintained his California domicile. The BOE then determined that Addington was outside of California for temporary or transitory purposes. The BOE sustained the FTB’s determination of residency. You can see from the Addington case how the BOE uses the above terms interchangeably.

  • Appeal of William G. and Susan G. Crozier (92-SBE-005, April 23, 1992)

    The Croziers were residing in Japan for 16 months. Upon their departure to Japan they sold some California property and rented other property. The BOE held that while the Croziers were domiciled in California, they were out of state for a temporary or transitory purpose and were not considered California resident for tax purposes. The BOE stated, “We held that where an individual expects to be out of California for an indefinite period which is expected to last more than two years, such individual will be considered to be out of the state for an indefinite period of substantial duration.”

How Is Someone Taxed Who Is Deemed Domiciled In California But Residing Outside of California Temporarily?

Going back to the Harrison case, FTB lawyers contended that if Harrison was not a California resident for part of the year he was still required to report his income earned in Oregon to the FTB for purposes of determining his tax rate on his California income in accordance with R&T Code § 17041(b).

R&T Code § 17041(a) imposes a tax upon the entire income, from all sources, of every California resident. R&T Code § 17041(b) imposes a tax upon the California source income of part-year residents. The rate of tax on part-year residents is determined by taking into account the taxpayer’s worldwide income (Appeal of Louis N. Million, 87-SBE-036, May 7, 1987). The method does not tax out-of-state income received while a taxpayer is not a resident of California, but merely takes the out-of-state income into consideration in determining the tax rate that should apply to California-source income. The purpose of the method is to apply the graduated tax rates to all persons, not just those who reside in California.

To calculate the tax rate for California, the tax on the total taxable income is calculated as if the taxpayer was a California resident, and then divided by the taxpayer’s total taxable income. The resulting rate is then applied to the taxpayer’s California taxable income to determine the FTB’s portion.

The fundamental fairness and the constitutionality of using out-of-state income to calculate the rate of tax has been upheld by New York’s highest court. The U.S. Supreme Court refused to hear the New York appeal. Here is an example of how the calculation works for Mason Harrison’s Oregon income: a non resident earning $20,000 in Oregon, but with $100,000 of reported total income, should be taxed on the $20,000 of Oregon-source income at the same rate as an Oregon resident with $100,000 of total income and not at the same rate as an Oregon resident with $20,000 of total income.

In Part 3 we will look at the standards that the BOE uses to determine residency and provide checklists for key indications of residency.


An EDD lawyer, Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States.

As a trusted EDD attorney, Robert S. Schriebman has successfully dedicated more than 30 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.

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 and 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.