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Ask The EDD Lawyer – What Is The Difference Between Being A Resident And Being Domiciled In California For FTB Purposes?

By Robert S. Schriebman

It is a battle that has been going on since time immemorial; the never ending battle between residency and domicile for California Franchise Tax Board purposes. If you are domiciled in California and receive taxable income you are subject to taxation by the Franchise Tax Board (FTB). If you are a resident of California and receive taxable income you are also subject to taxation by the FTB. If you are a non-resident and you are not domicile in California you may escape the clutches of the FTB. Sounds pretty simple doesn’t it? But it is anything but simple. Most of the calls I receive concerning the FTB concern the issues of residency and domicile. The key provision of the tax code is Revenue and Taxation Code §17014.

According to R&T Code §17014, a “resident” includes every individual who is in this state for other than a temporary or transitory purpose; and every individual domiciled in this state who is outside the state for a temporary or transitory purpose.

The Case Of Linjun Zhou And Xiaoying Yao

The taxpayers are husband and wife. The wife is a medical doctor and the husband is a businessman working in China. In 2007 these taxpayers filed a California resident income tax return (540) reporting $409,000 in taxable income, but they subtracted $96,000 representing the husband’s income earned while a resident in China. The FTB conducted an audit and included the $96,000 as California income and taxed it. The taxpayer’s filed an appeal that was heard before the State Board of Equalization (SBE). The taxpayers argued that the income earned in China while the husband was a resident of China should have been excluded. So far, so good – right? Wrong!

The SBE ruled that the husband, although a resident in China, was not domiciled in China. Therefore, all of his wages and other income received in China were considered California community property. One half of those wages belonged to his California resident wife and had to be included on their joint resident income tax return.

At the hearing the SBE first concluded that the FTB audit determination is presumed to be correct, and the taxpayer must provide complete proof to show that the FTB was wrong. See Todd v. McColgan (1949) 89 Cal.App.2d 509). The FTB successfully argued that marital property interests in personal property (wages and other taxable income) are determined under the laws of the acquiring spouse’s domicile. Everyone agreed that the husband was not a California resident during the tax year in issue. Residency is not the determining factor; domicile is the determining factor.

Throughout the year 2007 the wife and minor children resided in California. The couple had their primary residence in California. Both had California driver’s licenses. Periodically the husband would return to California to spend time with his family.

California is a community property state, and China also follows community property laws. The FTB pointed out that the couple made a mistake when they initially filed a joint California Resident Income Tax Return (Form 540). They should have filed a joint California Non Resident Income Tax Return (Form 540NR) and should not have excluded all of the husband’s wage income.

The Issue Of Domicile

But the real key issue in the entire case was the domicile of the husband and the meaning of the term “domicile” as oppose to “resident.”

The California Courts and the FTB Regulations define “domicile” as a location where a person has the most settled and permanent connection, and the place to which a person intends to return when absent. In law school the definition I learned was, “the location where one intends to stay indefinitely.” A person who is domiciled in California and leaves California retains his or her California domicile as long as there is a definite intention of returning to California regardless of the length of time or the reason why he or she is absent from California. Many years ago I represented a taxpayer who worked for a major aerospace company. He lived in my community, but the company would send him on assignment for long periods at a time. Yet his mailing address was local, and he maintained a home in my community and paid all the utility bills. Even though he was away for long periods of time he always intended to return to his home. His home, his community, was his domicile.

To change domicile one must actually move to a new residence and intend to remain there permanently or indefinitely (intention is very important). The primary evidence the FTB looks for in determining whether one is domiciled in California is where he or she pays utility bills and has a driver’s license (it always seems to come down to documentation even in this electronic age).

Marital property interests in personal property, including earned income, are determined under the laws of the acquiring spouse’s domicile. See Schecter v. Superior Court (1957) 49 Cal.2d 3, 10. If one spouse is a resident of California and the other spouse is domiciled in a community property state outside of California, the California spouse is liable for California income tax on his or her one half community property interest in the out-of-state spouse’s earnings.

In our sample case, the SBE found that China is a community property country as stated in Chapter III of the Marriage Law of the People’s Republic of China. Therefore, under California law one half of the husband’s wages had to be included in the California resident spouse’s income tax return.

There is another lesson to learn in this very interesting case. The couple originally filed a 2007 California Resident Income Tax Return (Form 540). The SBE pointed out that they should have filed a joint California Non Resident Income Tax Return (Form 540NR).


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, 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.