California Residency Rules

California Tax Residency Overview

California has some of the most stringent tax residency rules in the United States. Unlike many states that rely heavily on a simple day-count test (like the 183-day rule), California's determination is more complex and fact-intensive. The state taxes "residents" on their worldwide income, while "nonresidents" are taxed only on income sourced within California.

You are considered a California resident if you are present in the state for other than a temporary or transitory purpose, OR if you are domiciled in California but are outside the state for a temporary or transitory purpose.

Domicile vs. Residency

Domicile is defined as the place where you have your true, fixed, permanent home and principal establishment, and to which you intend to return whenever you are absent. You can have only one domicile at a time. To change your domicile, you must abandon your previous domicile and establish a new one by moving there physically with the intent to remain permanently or indefinitely.

Residency is a broader concept. You can be a resident of California even if your domicile is elsewhere, if your stay in California is for "other than a temporary or transitory purpose." Conversely, you can be a California domiciliary but considered a nonresident if you are absent from the state for a sufficiently long period under an employment-related contract (the Safe Harbor rule).

The "Purpose of Stay" Test

The core of California's residency dispute often revolves around whether your presence in (or absence from) the state is "temporary or transitory."

• Resident: If you are in California for a purpose that will take a long or indefinite time to complete (e.g., indefinite employment, retirement), you are likely a resident.
• Nonresident: If you are in California for a brief rest, vacation, or to complete a specific transaction or contract that will take a short time, you are likely a nonresident.

The 9-Month Presumption: California law presumes that if you spend more than nine months of a taxable year in the state, you are a resident. This is a rebuttable presumption, meaning you can prove otherwise, but the burden of proof is high. Spending less than six months in California does not automatically make you a nonresident; it simply avoids this statutory presumption.

Safe Harbor Rule (Employment-Related)

For those looking to leave California or work abroad/out-of-state without triggering California tax on worldwide income, the "Safe Harbor" rule is a critical exception. You may be considered a nonresident if you meet ALL the following conditions:

• You are outside California under an employment-related contract for an uninterrupted period of at least 546 consecutive days (approx. 1.5 years).
• You spend no more than 45 days in California during any taxable year within that period.
• Your intangible income (stocks, bonds, etc.) does not exceed $200,000 in any taxable year during the period.

This rule applies even if you maintain a home or other ties in California, provided the primary reason for your absence is not tax avoidance. This is a powerful tool for contractors or employees assigned to long-term projects outside the state.

Leaving California: The "Closest Connection" Test

If you do not qualify for the Safe Harbor rule, proving you have abandoned your California residency requires showing that your "closest connection" is now with a new location. The Franchise Tax Board (FTB) looks at a variety of factors (often called the "Bragg" or "Spear" factors) to weigh the strength of your ties to California vs. your new home. These include:

• Days Spent: Comparison of time spent in California vs. the new location.
• Home: Location and size of your principal residence (owned or leased).
• Family: Where your spouse and children reside.
• Possessions: Location of your vehicles, clothing, furniture, and heirlooms.
• Professional Ties: Business ownership, professional licenses, and union memberships.
• Social Ties: Church membership, social clubs, gym memberships.
• Administrative: Driver's license, voter registration, bank accounts, and doctors/dentists.

No single factor is determinative. It is a "facts and circumstances" test based on the aggregate weight of your connections.

Burden of Proof and Record Keeping

The burden of proof is on YOU, the taxpayer, to show that you are not a resident. If the FTB audits you, they will ask for detailed records to substantiate your claim. This includes travel logs, credit card statements, utility bills, and more.

Because California audits can be aggressive, maintaining a meticulous contemporaneous log of your location is essential. Relying on memory or reconstructing your calendar years later is often insufficient to withstand scrutiny.

Conclusion

Navigating California's residency rules requires careful planning and precise record-keeping. Whether you are trying to avoid becoming a resident or proving you have successfully left, every day counts. Download the Domicile365 App to track your days in California and other states. Signup for a free 60 day trial to start building your defense today.