The Six-Month Mythos
You don’t have to be a tax lawyer to know that the way to avoid becoming a resident of California is to spend less than six months in the state during any calendar year. Right? Well, not exactly. The “six-month presumption,” as it’s called, which is mentioned in one form or another in almost every Google search result of California residency rules, isn’t all that it’s cracked up to be. That’s not to say the amount of time spent in California doesn’t play an important role in determining legal residency. Just the opposite. It’s critical. But the real rule is more complex and has to be understood in the context of how California determines residency. It isn’t by counting days. In fact, relying on the six-month figure as a magical way to avoid California residency can get a taxpayer in tax trouble.
What Is The Six-Month Presumption?
The six-month presumption is established by regulation. You would think it would say something simple like: if you spend no more than six months in California during any calendar year, you’re not a resident. That’s the popular online version. And frankly it’s the version many auditors for the Franchise Tax Board (California’s tax enforcement agency) seem to have in mind. But that’s not the legal rule.
Rather, the rule has various qualifiers: if a taxpayer spends an aggregate of six months or less in California during the year, and is domiciled in another state, and has a permanent abode in the domicile state, and does nothing while in California other than what a tourist, visitor, or guest would do, then there is a rebuttable presumption of nonresidency. What would a tourist, visitor or guest do? According to the regulations, nothing much more than owning a vacation home, having a local bank account for local personal expenses, and belonging to a “social club” (read “a country club”).
These qualifiers call for some parsing.
Parsing The Presumption
First, the six months of the presumption is an aggregate figure. It’s not six months in a row. If you spend a total of more than 183 days in California during any calendar year in any order whatsoever, you don’t get the presumption. The six-month presumption is really a 183-day presumption.
Second, you have to be a domiciliary of another state and have a permanent home there (owned or rented). Domicile differs from residency as a legal concept. For residency law purposes, domicile is defined by case law and the regulations as “where an individual has his true, fixed, permanent home and principal establishment, and to which place he has, whenever he is absent, the intention of returning.” A significant body of case law has grown up around determining domicile. But for simplistic practical purposes, it’s where you are registered to vote, perform jury duty and have a driver’s license. If you aren’t a domiciliary of another state (that is, you don’t treat it as your permanent home even while away from it) and if you don’t have an abode there, you don’t get the six-month presumption. Period. It doesn’t matter if you only spend six days, rather than six months, in California.
Third, to get the presumption you must have only the kinds of limited contacts a tourist or visitor might have. The regulations envision this as restricted to owning a vacation home, having a local bank account, and joining a country club. Needless to say, the regulations are somewhat passé. Nobody needs a local bank account anymore due to interstate banking. And a country club is not something most out-of-state millennials with software companies seem keen on joining. But the point is, if a taxpayer has any other contacts (investment property, a foreign LLC registered with the Secretary of State, temporary employment, even a car registered here), the presumption evaporates.
Finally, the presumption is rebuttable. This means even if you meet all the requirements, the FTB retains the right to offer evidence proving you are a California resident. The evidence may consist in showing any facts or circumstances that indicate your stay in California is not temporary or transitory. Essentially, anything goes.
The purpose of the time spent in California is determinative, not the amount of time
As the above suggests, it isn’t easy getting the presumption. And even if you do, the FTB can attempt to rebut it. And beyond that, the benefit of the presumption is further eroded by a special rule the FTB almost always invokes: namely, the determinations of taxing authorities are presumptively correct. In short, if an FTB auditor concludes a taxpayer is a resident, the taxpayer bears the burden of proving otherwise on appeal, even if he qualified for the six-month presumption. This conflict between presumptions has never been reconciled by case law. As a practical matter, however, the FTB not surprisingly usually insists on the presumption of correctness. “The FTB’s tax assessments are presumptively correct” is usually the first sentence in the argument of the FTB’s brief in response to a taxpayer’s residency appeal.
Purpose, Not Time
With this in mind, a nonresident might wonder whether the six-month presumption is worth anything. The answer: yes and no.
On the “no” side, the real rule is not whether you spend more or less than six months in California, but rather the purpose for spending time here. If you are a domiciliary of another state, and if you come to California for a temporary or transitory purpose, it doesn’t matter how much time you spend here – you are not a California resident as a matter of law.
The example I like to give: a rock star from Seattle who rents a beach house in Malibu for the sole purpose of partying for a whole year straight is not a legal resident of California (obviously I wouldn’t recommend this, for reasons discussed below). In contrast, if that rock star moves to Malibu permanently to be part of the LA music scene and immediately goes on a world tour, he’s a California resident even if he spent only one day at the mansion. The purpose of the time spent in California is determinative, not the amount of time.
But to use a more realistic example than rockers on vacation to demonstrate the importance of purpose: if a software engineer comes to California under a contract to perform independent contractor services, which terminates in seven months (the time contemplated necessary to complete the project), the engineer would not be deemed a California resident as long as the taxpayer’s other conduct is consistent with nonresidency, such as staying in short-term living accommodations, retaining a dwelling in his home state, avoiding representations of residency (like registering to vote), and so forth. The purpose for spending the seven months in California is temporary (and relatively short-term), even if it is a majority of the tax year.
But: Quantity Has A Quality All Its Own
Now, of course, quantity has a quality all its own. If you spend a great deal of time in California (say, more than half a year), the FTB might legitimately argue that your stay here isn’t temporary, any claims about intent notwithstanding. For residency purposes, it’s not what a taxpayer says he intends, but rather what his actions show he intends, that determine whether the purpose of a stay in California is temporary or not. Most of us aren’t singers in a rock ‘n’ roll band. Where we spend most of the year is usually a pretty good indicator of our state of residence. Spending the majority of the year in California, year-in, year-out, suggests something other than a temporary purpose. It looks more like where you choose to live. Even for the software engineer, if the pattern of time in California involves spending more than six months in the state, over the span of several years, the argument that the purpose is temporary wears thin.
As for the rocker, he has another problem. He runs into the nine-month presumption, which states that taxpayers who spend more than that amount time here are presumed residents. The presumption is rebuttable, but case law suggests it is almost impossible to do so (there is only one old case that sides with the taxpayer).
I won’t get into that nine-month presumption here – like the six-month presumption, it rarely plays a determinative role in legal residency cases. Taxpayers who spend more than nine months in California tend to accumulate so many contacts with California that claiming the intent of the visit was temporary is difficult to sustain. But for clarity’s sake, the six-month presumption ostensibly applies to taxpayers who spend six months or less in California during the tax year. The nine-month presumption applies to those who spend more than nine months in the state. And between the six and nine months is a no-man’s-land where no presumption applies.
All this is on the “yes” side of the six-month figure. It can matter whether you spend more than half a year in California (even if spending less may not).
The Type Of Taxpayer Matters
In addition, the type of taxpayer matters when it comes to intent. A nonresident living and employed or owning a business outside of California might occasionally, under certain circumstances, wind up spending more than six months in California due to the requirements of their job. That won’t necessarily result in the time spent here being seen as having a permanent intent. That’s the software engineer example. In contrast, retired persons who spend most of the year in California are making a choice about where the center of their lives are situated. The concept, from the FTB’s perspective, is that retired persons aren’t anchored to any particular state by a job, and where they spend most of the time likely represents the place they want to live. If they have a pattern of spending more time in California as a choice, they face a difficult time convincing an auditor that the stays were temporary or transitory. They look less like a vacation and more like living in California.
The concept is, the place where you spend most of your time (not necessarily the majority of the year) is more likely to be your home than not
The Real Rule: Not California Against The World, But California Against Your Home State
As the above shows, the purpose for spending time in California matters in residency determinations. But the FTB often determines the purpose by the amount of time itself (not what taxpayers say about it). And it gets even more complex than that. Which brings us to the “real” rule involving time in California.
California uses a “ledger” analysis to adjudicate residency. In an audit or subsequent appeal, the FTB lists all the contacts a person has with California, and all the contacts a person has with their claimed home state. And then it weighs them. In totality. Not all contacts weigh the same. The important categories subject to comparison are dwellings, physical presence (time spent), location of work, location of assets, where your immediate family lives, and representations of residency. This ledger test is discussed in more detail here.
The point is, time spent in California is always evaluated against time spent in a taxpayer’s home state. It isn’t viewed in isolation. The applicable rule used by an auditor will not be whether you spend less than the six months in California, but whether you spend more time in your home state than in California, however long that time is.
To put it more bluntly, when it comes to time, it’s not California vs. the world, but California vs. your home state. It’s a plurality rule, not a majority rule. The difference is crucial, and it is a common mistake in bad residency tax planning. Time spent in states or jurisdictions other than California and your home state doesn’t help you. Thus, if a nonresident’s time profile is five months in California, four months in his home state, and the balance of the year traveling elsewhere, the FTB will use this as an argument for residency, even though the taxpayer spend less than six months in California. The concept is, the place where you spend most of your time (not necessarily the majority of the year) is more likely to be your home than not. You prevail in the time category by spending more time in your home state than in California, not by being in California for less than half the year.
In a residency audit, the FTB will literally make a ledger with three columns: one column will itemize the days in California; another the days in your home state; and a third labeled “Other,” the time spent elsewhere. The auditor will compare the California column with your home state column. The Other column isn’t usually relevant. If you spend more time in your home state than in California, you prevail in the time category. If you spend less time, you lose in this category.
Like almost all California residency rules, this plurality rule isn’t dispositive. As I indicated, a time-limited contract would be an exception, and I’ve often successfully argued in residency audits that special circumstances, such as a job that involves a great deal of travel, may override the impact of the rule. But nonresidents (and their tax advisers) ignore the plurality rule in making residency plans at their peril. The best way to prevail in the category comparing time spent in California and your home state is always to spend more time in your home state than in California. In other words, forget about the six-month presumption.
Conclusion: Plurality, Not Six Months
There is nothing magical about six calendar months in residency law. In fact, very few taxpayers ever qualify for the six-month presumption due to its many legal requirements, and the contending presumption that the FTB’s rulings are correct and have to be rebutted. Worse, the six-month figure can lead taxpayers into a false sense of security (and an audit), since the purpose of a stay in California has more weight in determining legal residency than any particular number of months spent here. The goal should be to spend more time in your home state than in California, not less than six months in California. That said, regardless of the legalities of the presumption, it makes sense for seasonal visitors, vacationers, temporary workers, and other nonresidents who visit California, to limit their time here as much as possible. Especially at the audit level (where there are no lawyers on the FTB side), the six-month figure looms large. And it makes sense to spend more than half the year in your home state to avoid arguments about you intent to reside there . But don’t let the six-month tail wag the residency dog. The real issue nonresidents face is to make sure a stay in California not only looks like it’s for temporary purposes, but in fact is for temporary purposes because you spent more time in your home state.
Manes Law is the premier law firm focusing exclusively on comprehensive, start-to-finish California residency tax planning. With over 25 years of experience, we assist a clientele of successful innovators and investors, including founders exiting startups through IPOs or M&As, professional athletes and actors, businesses moving out of state, crypto-asset traders and investors, and global citizens who are able to live, work, and retire wherever they want. Learn more about our services at our website: www.calresidencytaxattorney.com.
No information contained in this post should be construed as legal advice from Justia Inc. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
What is the 9 month presumption of residence rule? ›
Presumption of residence—nine month rule.
An individual who spends, in the aggregate, more than nine months of any taxable year in California is presumed to be a California resident.
To meet these requirements, you must be continuously physically present in California for more than one year (366 days) immediately prior to the residence determination date (generally the first day of classes) and intend to make California your home permanently.How many months does it take to become a resident of California? ›
You will be presumed to be a California resident for any taxable year in which you spend more than nine months in this state. Although you may have connections with another state, if your stay in California is for other than a temporary or transitory purpose, you are a California resident.What qualifies as California residency for tax purposes? ›
California Residency for Tax Purposes
The state of California defines a resident for tax purposes to be any individual who is in California for other than a temporary or transitory purpose and, any individual domiciled in California who is absent for a temporary or transitory purpose.
- Commencing full-time employment in new home state.
- Few or no days spent in California subsequent to departure.
- Moving all household items and possessions to new home.
- Obtaining new doctor, dentist, and other social relationships in new home.
Homes, apartments, boats, and trailers can all be considered a primary residence as long as it is where an individual, couple, or family resides the majority of the time. California defines a primary residence as “the place where you voluntarily establish yourself and family, not merely for a special or limited purpose ...What determines the length of residency? ›
Residency training length depends on the specialty you pursue. Primary care residency programs are the shortest while surgical residencies are longer.What is the 183 day rule for residency? ›
The IRS considers you a U.S. resident if you were physically present in the U.S. on at least 31 days of the current year and 183 days during a three-year period. The three-year period consists of the current year and the prior two years.Does California have a 183 day rule? ›
In fact, the purpose of time spent in California may have more weight in determining legal residency than the actual number of days spent. To classify as a nonresident, an individual has to prove that they were in the state for less than 183 days and that their purpose for being in the state was temporary.How long does it take to lose residency in California? ›
If you are in California for more than 9 months, you are presumed to be a resident. Yet if your job requires you to be outside the state, it usually takes 18 months to be presumed no longer a resident. Your domicile is your true, fixed permanent home, the place where you intend to return even when you're gone.
What is the 546 day rule in California? ›
An absence from California under an employment-related contract for a period of at least 546 consecutive days may be considered an absence for other than a temporary or transitory purpose.
Legally, you can have multiple residences in multiple states, but only one domicile. You must be physically in the same state as your domicile most of the year, and able to prove the domicile is your principal residence, “true home” or “place you return to.”What are 2 proofs of California residency? ›
TWO different documents proving California residency that include the first and last name and mailing address that will be shown on your REAL ID driver's license or identification card. Examples include a mortgage bill, home utility or cell phone bill, vehicle registration card, and bank statement.Does owning property in California make you a resident? ›
Simply owning a vacation home in California does not mean you are considered a resident or nonresident. This is where the term “temporary or transitory” comes into play in California residency law.What is the difference between residency and tax residency? ›
Residency is where one chooses to live. Domicile is more permanent and is essentially somebody's home base. Once you move into a home and take steps to establish your domicile in one state, that state becomes your tax home.How to avoid California residency audit? ›
The Six-Month Presumption in California Residency Law: Not All It's Cracked Up To Be. You don't have to be a tax lawyer to know that the way to avoid becoming a resident of California is to spend less than six months in the state during any calendar year.What triggers a state residency audit? ›
Any activity that raises a red flag with the FTB can trigger a residency audit. It can be something as simple as living in another state and having a second home in California, to a tip-off from the IRS or another third party. (The IRS and individual states share information, BTW.)What happens if you get kicked out of residency? ›
After termination or resignation, you will most likely be unable to work in the specialty that you trained in since you have not yet finished residency and are not board eligible. Despite hitting this major road block, you must finish residency to optimize your earning potential and to advance in your career.Can my husband and I have different primary residence? ›
A married couple who live together are only allowed one main residence for tax purposes between them. After separation, each spouse is allowed their own main residence. The same rules apply to civil partners.Can my husband and I have separate primary residence? ›
The IRS is very clear that taxpayers, including married couples, have only one primary residence—which the agency refers to as the “main home.” Your main home is always the residence where you ordinarily live most of the time.
Can you have two primary residences in California? ›
For tax purposes, you'll have to designate one of the homes as your primary residence, even if it's an arbitrary choice. Typically, you cannot finance both homes as primary residences simultaneously.What month does residency start? ›
A year in residency begins between late June and early July depending on the individual program and ends one calendar year later. In the United States, the first year of residency is known as an internship with those physicians being termed interns.How do you prove residency status? ›
- Copy of U.S. passport (current or expired)
- Copy of U.S. civil issued birth certificate.
- Copy of alien registration card.
- Copy of naturalization/citizenship certificate.
The residential status of a person can be categorised into Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR) and Non- Resident (NR).What is the 6 month tax rule? ›
If you are not able to file your return by the due date, you generally can get an automatic 6-month extension of time to file (but not of time to pay). To get this automatic extension, you must file a paper Form 4868 or use IRS efile (electronic filing).Can you take a day off during residency? ›
Residency programs typically offer between two and four weeks of vacation, with the flexibility to schedule them increasing as residents advance in their training. We spoke with residents about how they make the most of their extended time away from the hospital and clinic.Can you take a year off during residency? ›
In most programs, residents receive four weeks of vacation per academic year where they're free from educational and clinical work. Depending on your program, this may come in the form of two two-week stretches, four one-week stretches, or a combination.How far back can the state of California audit you? ›
Generally, we have 4 years from the date you filed your return to issue our assessment. However, if you: Filed your return before the original due date , we have 4 years from the original due date to issue our assessment. Did not file a return for the tax year, we can issue our assessment at any time.Can California tax you after you leave? ›
To close this loophole, the Golden State enacted the California wealth and exit tax. Now, anyone who leaves the state is required to pay taxes on their unrealized capital gains. It's been criticized by many people, who argue that it is unfair and punitive.How do I avoid a California state tax penalty? ›
If you filed your income tax return or paid your income taxes after the due date, you received a penalty. To avoid penalties in the future, file or pay by the due date.
How long must the qualifying relative live in the home? ›
Your qualifying dependent must live with you for more than half the year. The qualifying dependent must be one of these: Under age 19 at the end of the year and younger than you (or your spouse if married filing jointly)How does the IRS determine residency? ›
If you meet the substantial presence test for a calendar year, your residency starting date is generally the first day you are present in the United States during that calendar year.What are the rules of determining residential status? ›
An individual is said to be a resident in the tax year if he/she is: physically present in India for a period of 182 days or more in the tax year (182-day rule), or.Can you maintain dual residency in 2 states? ›
Legally, you can have multiple residences in multiple states, but only one domicile. You must be physically in the same state as your domicile most of the year, and able to prove the domicile is your principal residence, “true home” or “place you return to.”Does Social Security count as income? ›
Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).Does a qualifying relative have to live with you all year? ›
The qualifying relative must either live in the taxpayer's household all year or be related to the taxpayer as a child, sibling, parent, grandparent, niece or nephew, aunt or uncle, certain in-law, or certain step-relative.Does a qualifying child have to live with you all year? ›
Generally, a child must live with you in the United States for more than half of the tax year to be a qualifying child.Can the IRS take your primary residence? ›
Technically, as it happens, the IRS is allowed under the law to take a taxpayer's home to satisfy tax debts. However, it is relatively difficult for the IRS to do so. As a result, the IRS tends to be quite restrictive in seeking to take residences to pay tax debts.What is the 6 year lookback rule? ›
"Six Year Look-Back" Rule :
Under the "six year look-back rule," persons in F, J, M or Q visa status must have at least two calendar years of NRA for tax purposes status during the prior six calendar year period from the current year.