Nevada Residency and Multi-State Taxation

One of the factors motivating many individuals and businesses to relocate to Nevada is the hospitable income tax climate which prevails in the state. Nevada imposes no income tax whatsoever on individuals or on business entities. Ashley Quinn, CPAs and Consultants, Ltd. is particularly experienced in the tax rules and planning aspects of relocation from California to Nevada and can help you evaluate your potential for state income tax savings by relocating to Nevada. Ashley Quinn has also successfully represented many clients in state residency audits.

California Revenue and Taxation Code Section 17014(a) defines “resident” to include (1) “Every individual who is in California for other than a temporary or transitory purpose”; and (2) “Every individual who is domiciled in California who is outside the state for a temporary or transitory purpose.” Conversely, any individual who is not a California resident is a “nonresident.”

Although the law defines resident and non-resident in only 32 words, there is very little formal guidance when it comes to determining California residency for personal income tax purposes. Accordingly, determination of California residency is not an easy task.

The concept of domicile is closely related to the definition of residency. Domicile is generally defined as the one location with which for legal purposes a person is considered to have the most settled and permanent connection, the place where he intends to remain and to which, whenever he is absent, he has the intention of returning.

Changing domicile generally requires showing that a taxpayer left the state without any intention of returning and has located elsewhere with the intention of remaining there indefinitely.

The “closest connections test” is commonly used to analyze the question of a taxpayer’s residency. The test considers 19 factors, which the California State Board of Equalization set forth in the Appeals of Stephen D. Bragg.

The factors are:

  1. The location of all of the taxpayer’s residential real property and the approximate sizes and values of each of the residences;
  2. The state wherein the taxpayer’s spouse and children reside;
  3. The state wherein the taxpayer’s children attend school;
  4. The state wherein the taxpayer claims the homeowner’s property tax exemption on a residence;
  5. The taxpayer’s telephone records (i.e.1, the origination point of taxpayer’s telephone calls);
  6. The number of days the taxpayer spends in California versus the number of days the taxpayer spends in other states and the general purpose of such days (i.e., vacation, business, etc.);
  7. The location where the taxpayer files his tax returns, both federal and state, and the state of residence claimed by the taxpayer on such returns;
  8. The location of the taxpayer’s bank and savings accounts;
  9. The origination point of the taxpayer’s checking account transactions and credit card transactions;
  10. The state wherein the taxpayer maintains memberships in social, religious and professional organizations;
  11. The state wherein the taxpayer registers his automobiles;
  12. The state wherein the taxpayer maintains a driver’s license;
  13. The state wherein the taxpayer maintains voter registration and the taxpayer’s voting participation history;
  14. The state wherein the taxpayer obtains professional services, such as doctors, dentists, accountants and attorneys;
  15. The state wherein the taxpayer is employed;
  16. The state wherein the taxpayer maintains or owns business interests;
  17. The state wherein the taxpayer holds a professional license or licenses;
  18. The state wherein the taxpayer owns investment real property; and
  19. The indications in affidavits from various individuals discussing the taxpayer’s residency.

While no factor by itself can positively determine state residency, registering to vote or claiming the homeowner’s exemption in California, for example, have been found to make the taxpayer a California resident, regardless of the other factors.

Individuals who are “domiciled” in Nevada and become Nevada residents will generally escape state taxation of their income, except for income arising from sources within another state. Even taxpayers who may continue to have a requirement to “source” one or more items of their income to a taxable state may still enjoy a significant reduction in their overall state tax burden.