Residency can be a significant tax concern for high-income earners and digital nomads who say they have abandoned California. California Franchise Tax Board (FTB) does not use days to determine residency. The presence in California of another person for any purpose other than a temporary or transitory one, or his or her domicile in the state.
[image: ghost residency audit]If an individual meets the residency requirement for more than 9 months in California, then there is a rebuttable presumption that the individual is a resident of California. There is a rebuttable presumption of residency if a person has been present in California for more than 9 months, but not being present for fewer than 9 months does not establish residency. Hire a tax professional (similar to a tax attorney in San Diego CA) who can guide you if necessary.
Importance of Digital Footprint
There are many documents left behind by modern life from which clues may be found to determine your true location. Financial records are listed as valuable evidence in FTB’s residency audit guidance. Bank and credit-card statements may include transaction dates and locations, such as ATM, debit, and point-of-sale transactions.
If you are a digital nomad who states that he or she lives somewhere else, a pattern of activity in California may cause questions. Examples may include:
- Credit-card purchases repeatedly occurring in California.
- Periodic fees for goods or services from California businesses.
- Regular activity in the state of California for fitness-app or gym check-ins.
- Continued use of a California home as indicated on utility bills.
- Travel, lodging, or transportation records that locate you in California.
- Conflicting dates on the residency log with digital records.
This is not a requirement to establish residency for every app check-in and transaction. The overall facts and circumstances are considered, such as domicile and the purpose of a person’s presence, by the FTB.
Why do Digital Nomads Face Extra Scrutiny?
Residents of California do not lose their state of residence by changing their residence to Nevada, Texas, or any other state. Facts that remain in California may become relevant if your family, your home, your business interests, your driver’s license, your financial relationship, or other significant facts remain in California. Call an expert (similar to a tax accountant lawyer) who will check your details and prescribe the right tools.
During an audit, the FTB might request certain facts in the form of Information Document Requests (IDRs). In addition to the right to respond to the FTB’s position before an audit closes, taxpayers may have a representative from their tax professional represent them.
Strategies for Creating a Residency File
If you actually moved outside California, keep records that clearly demonstrate that:
- Make note of travel routing and day counts.
- Keep lease, closing papers, and utility bills of your new home.
- Record the date of the sale, rental, or other transfer of California housing.
- Maintain records of your new state’s driving license, voter registration, insurance, and other ties.
- Review financial statements for CA transactions that may be subject to explanation.
- Maintain employment/business records where work was done.
- Maintain supporting records for the relevant tax year.
Most of all, don’t make-up or fabricate records to give the impression of no residency. FTB guidelines advise taxpayers to supply requested information and remind them that if taxpayers make false statements, they could face penalties and even criminal charges.
The California residency change is not as simple as spending less than 183 days in California. The presence, home, and local connections you have can all be of importance. The seemingly mundane financial and location documents that digital nomads would turn a blind eye to may be critical to the residency policy when an FTB audit comes around.