In Matter of the Appeal of Bracamonte, in a March 22, 2021 opinion, the California Office of Tax Appeals held that the taxpayers were resident in California on the date of the sale of their company, notwithstanding their efforts to relocate to Nevada (a state without an income tax) before the sale. If the change of state had been effective for state income tax purposes, this would would have had the effect of avoiding California tax on the sale. Although the taxpayers leased an apartment in Nevada while they looked for a home to purchase, the evidence showed that they spent more days in California than they did Nevada between the date of their purported move and the date of the sale of their company. Although the taxpayers took numerous steps to shift their residency and domicile to Nevada, the adverse day count was fatal to their effort.
The Office of Tax Appeals stated: “Most significantly, appellants’ physical presence in California from February 26, 2008, the date appellants argue they moved out of California, to July 18, 2008 [Date of Company sale], far outweighed their presence in any other state. As stated above, appellants were in California for 90 days, and in Henderson, Nevada for only 28 days. We find the sheer amount of time spent in California, and the average length of their stay in the respective homes significant. Indeed, physical presence is a factor of greater significance than mental intent and the formalities that tie one to a particular state. (Noble v. Franchise Tax Bd., supra, 118 Cal.App.4th at pp. 567; Whittell v. Franchise Tax Bd. (1964) 231 Cal.App.2d 278.) Thus, despite appellants’ actions to transition to becoming Nevada residents, we find their physical presence in California most persuasive.”
This case illustrates the importance of both maintaining an accurate day count and one that is higher in the favorable state than the unfavorable state. For information on using the Domicile365 app to track your day counts, click here.