Ask The California Employment Tax And Payroll Tax Attorney – Having A Second Home Out Of State May Still Make You A California Resident For Income Tax Purposes

By Robert S. Schriebman

2021 

Introduction

Having a second home out of state may still make you a California resident for income tax purposes.  On March 22, 2021, the Office of Tax Appeals (OTA) released the decision In the matter of Bracamonte, No 18010932.  This article will discuss the Bracamonte case.

The Bracamonte Case

The published decision was very short and left out a lot of information.  I will attempt to piece things together for purposes of this discussion. The Bracamontes owned an aviation services corporation that most likely was California formed entity.  They sold the company but did not report the sales proceeds on any California income tax return.  The FTB conducted an audit and issued a proposed assessment that was protested.  The Bracamontes argued that at the time of the sale they no longer lived in California. The key issue in the case was the location of the shareholders’ domicile for income tax purposes.

Domicile has a unique meaning in the tax law.  It means a physical location where the taxpayer resides coupled with the taxpayer’s intention to remain at this location indefinitely.  Domicile is not the same concept as residency.  Residency can be transitory.  Domicile on the other hand reflects permanence.

If one is domiciled in California, one is liable for FTB taxes on income.  The Bracamontes argued that they were domiciled in Nevada.  They may have purchased a second home.  The OTA observed that they spent 90 days in California and only 28 days in Nevada – no other time periods were mentioned in the decision.  The OTA found documentation that their time in Nevada was “temporary and transitory.”  No other facts were given in the decision.

The Bottom Line – the OTA ruled that the Bracamontes were domiciled in California at the time of the sale.  Therefore, they had to pay FTB taxes on the income from the sale of their business.

Conclusion

The best way to prove that you have a domicile outside of California is to create paper evidence that you intend to reside in your new location indefinitely.  Prior tax cases have suggested that you do such actions as obtaining a new driver’s license, register to vote, and have utilities bills that reflect your new address.  The FTB will use every argument in the book to try to collect taxes from you.  You have the burden of proving that you are not domiciled in California – you have to prove the negative.

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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 50 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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