If you live and work in California you know what it means to be a resident and pay California state income taxes. In the year you come to California to live, or the year you leave California, you would generally be considered a part-year resident. You would be subject to California state tax on all your income for the portion of the year you are a resident, and on your California source income for the portion of the year you are a nonresident.
If you work in California on a temporary basis, but live in another state, you would generally be subject to California state tax on the income you receive for the services you perform in California, plus any other income you may have from California sources.
According to the California Franchise Tax Board, you are considered a resident of California if you are present in California other than for a temporary or transitory purpose, or if you are domiciled in California but you are outside California for a temporary or transitory purpose.
You are presumed to be a California resident for any year in which you spend more than nine months in the state. In other cases, residency is determined based on where you have the closest ties. The California Franchise Tax Board lists several factors in making this determination, including the amount of time you spend in California and outside the state, where your spouse or registered domestic partner and children are located, the location of your principal residence, the location where your driver’s license is issued and your vehicle is registered, where you are registered to vote, where you have a bank account, where you have your medical and health care providers and other professionals, where you have your social ties, and where your real estate or other investments are located.
Generally, if you are assigned to work in California on an indefinite basis, you would be considered a resident. You would also be a resident if you come to California to retire with no specific plans to leave, or if you are ill and you stay in California for an indefinite recuperation period. And once you are considered a resident of California, you would continue to be a resident if you leave the state only for temporary or transitory purposes.
But if you leave California due to an employment-related contract for a period of at least 546 consecutive days, you will be considered a nonresident. This is called the safe harbor, and it also applies to the individual’s spouse or registered domestic partner. This safe harbor provision would not apply if you have intangible income of over $200,000 in any year while the employment contract is in effect, or if the principal purpose of being absent from California is to avoid the income tax. Under the safe harbor, return visits to California for a total of not more than a total of 45 days in any year are considered temporary and would not change your nonresident status.
If you are in the military you are generally considered to be a resident of the state from which you entered the service. If you were domiciled in California when you entered the military you would be a resident while you are stationed in California. And you would continue to be a California resident if you are assigned outside the state on temporary duty orders. But you would be a nonresident while you are stationed outside of California on permanent change of station orders. If you are domiciled outside California you would be a nonresident of California while you are stationed in the state on permanent change of station orders.
The California Franchise Tax Board points out that if you are a resident of a foreign country and work temporarily in California or have income from sources in California you could be subject to California state income tax even if you are not subject to federal income tax. Tax treaties between the U.S. and other countries may exempt income from federal tax, but unless the treaty specifically excludes the income from tax in California, it would be subject to California state income tax. Non-military spouses who remain in California would be considered California residents for tax purposes.
Nonresidents or part-year residents of California calculate their California state income tax at an effective rate. This rate is determined as the California tax that would apply on all your income as if you were a resident of California, divided by that income. This effective rate is then applied to the income of the nonresidents or part-year residents that is taxable in California. This way, according to the California Franchise Tax Board, the correct tax is paid on California sourced income, and income not sourced in California is not taxed.
FTB Publication 1031, Guideline for Determining Resident Status, California Franchise Tax Board
FTB Publication 1032, Tax Information for Military Personnel, California Franchise Tax Board
FTB Publication 1100, Taxation of Nonresidents and Individuals Who Change Residency, California Franchise Tax Board