Guidelines for Determining Residency
The following is a list of factors used in determining residency (FTB Publication 1031 – 2021):
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Physical Presence - Amount of time spent in CA vs. elsewhere
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Location of spouse/RDP, children and family
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Principal residence – Where is it located (and is it owned or leased)?
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State where professional licenses are maintained
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State that issued driver’s license and where vehicles are registered
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Voter Registration – What state?
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Location of financial institutions, and point of origin of financial transactions (bank accounts, credit cards)
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Location of professionals, physician, accountant, attorney, insurance agent and broker
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Location of investments and real property
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Location of social, family, religious and business connections
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Permanence of work assignments in California
When the FTB challenges a residency position by a taxpayer, the documentation requested as part of the audit may include the following:
1. Real Property
a. Purchase/Sale/Lease Information
b. Escrow Documents
c. Insurance Records
2. Personal Property
a. Vehicle/Vessel Registration
3. Business Activity Information
a. Travel Logs or Personal Calendars
b. Employment Contracts
4. Financial Records
a. Cancelled Checks/Statements
b. Credit Card Receipts/Statements
5. Personal Records and/or Information
a. Voter Registration
b. Service Providers (e.g., utility statements)
Voter Registration
To illustrate the importance of the above items, just registering to vote in California and/or claiming the California homeowner’s property tax exemption can create a presumption that makes a taxpayer a resident. (See the following BOE cases: Appeal of Pierre and Nicole Salinger 1980 SBE 089 and Appeal of Anthony and Ann D’Eustachio 1985 85 SBE 040)
Residency Audits
A residency audit – which the FTB aims to complete within 18 months – focuses on:
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Claimed state of residency,
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Personal records, business activity info and financial records
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Real property (sale, purchase, lease)
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Personal property (car, boat, plane)
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Business activity logs/calendars – possible related business entities
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Personal records (voting, medical services)
Residency Appeal Board of Equalization Case - A 2003 residency case that went to Appeal was won by a taxpayer by the name of Stephen D. Bragg. It was an interesting case in which Mr. Bragg had homes and business activities in two states, CA and AZ. He had bank accounts in CA and cars registered in CA. The taxpayer had all of his professional services done in CA. The taxpayer spent substantial time in Arizona. He spent the majority of time during the tax year in his Arizona home. Bragg conducted most of his business in AZ. He also had full-time employment in Arizona. The kicker was the taxpayer had no intention of returning to CA to reside. The Board’s findings were made with Bragg’s many CA ties.
Appealing FTB Residency Audit Determination
When the audit is complete, FTB will also issue one or more of the following:
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A letter stating FTB accepted the return or the claim for refund as taxpayer filed it.
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A letter stating FTB denied or partially denied taxpayer’s claim for refund.
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A Notice of Proposed Assessment indicating the additional tax FTB believes is owed.
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A Notice of Overassessment indicating the refund FTB owes.
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A Notice of Proposed Adjusted Carryover Amount indicating FTB changed a carryover item but taxpayer owes no additional tax.
If FTB issues a Notice of Proposed Assessment and taxpayer does not agree, taxpayer has the right to protest FTB action. Taxpayer must file a written protest by the date shown on the front of the FTB notice. FTB provides specific protest procedures with the notice. If FTB does not grant taxpayer’s claim for a refund, taxpayer has the right to appeal the FTB action. Prior to July 1, 2017, such written appeal was filed with the California State Board of Equalization (SBE) within 30 days of the date of the FTB denial letter. A new agency, the Office of Tax Appeals, took over part of the SBE’s functions as of July 1, 2017, but didn’t begin full operations and hearing appeals until January 1, 2018. For more information regarding taxpayer protest and appeal rights, refer to California Taxpayers' Bill of Rights publications (FTB 4058 and 4058C – available on the FTB’s web site) or visit the Office of Tax Appeals website at ota.ca.gov.
Notice of Proposed Assessment
The Notice of Tax Proposed Assessment (NPA) gives the taxpayer a 60-day right of appeal within FTB. After the taxpayer’s protest or appeal is ruled on by FTB, a Notice of Action will be issued by FTB. The taxpayer then has 30 days to appeal the FTB determination to the Office of Tax Appeals, where a 3-member panel of administrative law judges will hear the case. In a residency determination case, the taxpayer is granted a big exception to file an appeal of an FTB notice of action in the California Superior Court with no prepayment of tax required. In general, tax must be paid prior to going to Superior Court.