A reader writes in:
“I’m a Nevada resident, but I love California, and most of my family is there as well. I’ll be retiring soon and I’d like to live there part of the year, but rent a home here in Nevada where I’ll also spend part of the year. Will I need to pay California state income tax?
Great question! Since California’s income tax stretches from as little as 1% to as high as 13.3% – this can be a financially crucial one as well.
7 states currently have no income tax. They are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. If you’re a resident of one of those states – or want to establish residency – you need to pay special attention to the tax laws.
Establishing residency for tax purposes is a state by state issue. The laws of California are different than they are for Nevada, or any other state. If you don’t play by the rules, you may be subject to state tax penalties and interest. These can amount to tens of thousand – even hundreds of thousands of dollars!
Residency vs domicile
Establishing residency for state income tax purposes can be tricky. Each state is different.
The first thing to consider is your resident status versus your state of domicile. Residency varies from state to state. Being in a state physically is the main residency test. Owning a home, family location, and financial interests are other factors which help determine residency.
Domicile and residency are often used interchangeably. They’re different however. Residency is simply where you stay. Domicile is your permanent place of residence, or where you ultimately call home. Where your family is located plays a large part in determining domicile.
You can stay in multiple places giving you residency in multiple places. Conversely, you can only have one domicile.
For tax purposes, most states consider some form of domicile. If your permanent home is in California, you’re considered domiciled there. Every state is different however, so you’ll need to research your own states residency and domicile requirements.
California residency status for tax purposes
California requires you to pay state income tax even if you’re a part time resident.
In California, you’re considered a resident if:
- You’re in California for other than a temporary or transitory purpose
- You’re domiciled in California, but staying outside CA for a temporary or transitory purpose
California defines three classes of individuals:
- California residents – You’re taxed on ALL income no matter where you earn it.
- Nonresidents – Taxed ONLY on income you earn in California.
- Part-Year residents – You’re taxed on ALL INCOME received while you’re a resident of California. For periods of time you’re not in California, California would only tax income from sources within California.
Nevada residency for income tax purposes
Nevada’s constitution states that no income tax will be levied on residents. As such, Nevada rules aren’t nearly as defined as states with an income tax. Nevada residency rules simply state that legal residence requires physical presence during the period for which residency is claimed.
Domicile is interesting in Nevada. You can actually file a sworn statement with the district court in your county. They call this a “declaration of domicile”. You must present evidence of residency and your intent to make it permanent within the state of Nevada.
In reality, residency for tax purposes is determined by…
In practical terms, residency (rather your domicile depending on your state laws) is determined by your true intent to live in a state. This intent can be proved by things such as:
- In what state are you registered to vote?
- What state issued your drivers license?
- Where is your vehicle registered?
- Where does your family live?
- Where do you own your home?
- Where do your kids go to school?
- Where are your financial interests located?
- Have you applied for any governmental programs, tax breaks, or privileges and in which state?
Those things – in large part – will determine in which state(s) you’ll need to pay income tax.
My take on your question, dear reader
Where will you maintain your drivers license and vehicle registration? If you’re living in Nevada most of the year, I assume you’d maintain those things in Nevada. I also assume you’ll have a place to live here – rented or owned – for the entire year.
Assuming you also are registered to vote in Nevada, it seems your official domicile would be Nevada for tax purposes. That being said, pay special attention to the “part-year resident” status under California law. If you’re a resident of California even part of the year, they require you to file California long form 540nr.
So if you’re spending a few weeks a year with friends and family, that’s a vacation. If you’re living there more than that, you may very well be on the hook for whatever income you earn during the period of time you’re there.
Contact a qualified accounting firm in Nevada where you plan on filing. Gerety and Associates is one such firm. Gilmore & Gilmore is another. It’s better to be safe than rack up years of penalties and interest, only to find out California claimed you as a resident and you owe them state income tax.
OK, I get the California vs Nevada problem but mine is different. My wife was born in NV and we moved back there several years ago for a period of four years. We then sold our house there and obtained a 10 year “resident” visa in France which still has a few years left. We have a bank account, drivers license, and vote in NV. WE HAVE dentist, friends, in NV and believe we will return there later. Are we still NV residents?
I can’t give you a definitive answer unfortunately, there are too many grey areas for most situations. I would ask the CA State tax board directly, but I would assume if you vote here, have a DL here in NV, and financial affairs here that would go a long way – If you have a residence in CA however, I can’t give you a solid answer. In the end, it’s the CA state tax board that would make the call.
What about making South Dakota my ‘legal” residency?
Wherever you want to live, just make sure you’re not living in two different states solely to avoid the state income tax. Also please review with your CPA before claiming residency.
I’m currently a California resident in the process of buying a home in Nevada which will be my
primary residence. Will the purchase of this Nevada property establish my residency in the
state?
Buying a home doesn’t establish residency. You’ll need to prove you live here with a drivers license, voter registration, and I’d save all of my receipts for things purchased in Nevada to help prove you’re spending a significant amount of time here which will meet the requirements. Also please review with your CPA before claiming any residency status.
What if one owns homes in multiple states, specifically, Arizona, California and Nevada? My wife & I are both retired now and plan to travel extensively throughout the US in an RV. Would simply having a Nevada Drivers license with the mailing address of the Nevada home suffice as proof of permanent residence in Nevada for income tax purposes? (Note: all of our utility bills are all paid through automatic debit accounts since we’re on the road most of the time).
Purchasing a home alone doesn’t make you a Nevada resident unfortunately. You really need to focus on proving you spend significant time here in Nevada. I highly recommend speaking with your CPA as well since they’ll know your specific situation in great detail.
My husband and I are retired collecting California pensions. We rent in the Bay Area and are considering keeping our affordable rental while moving to Nevada and renting there full time with vacations back to Bay Area. I suppose the only things identifying us as permanent NV residents would be drivers lic and voting in NV. How does one prove they were actually physically present in the resident state the 180 some days required in our situ?
Hi Susann,
Unfortunately this is really a case by base basis. The state of CA may come after you if you claim NV residence even if you have a drivers license and vote here. I would highly recommend running this by your accountant or CPA who knows your specific situation in great detail. I suspect however, that if you keep receipts (eating out, utility bills, getting gas, buying a TV etc.) dated that show you’re here for a large part of the year (not that you have to purchase something every single day), plus the drivers license and voter records that would go a long way towards proving residency. Again, please consult your tax advisor. That’s the only way I think you could really “prove” how many days you spent here in Nevada.
I just sold my condo in the Bay Area and plan to move to NV for 2 months before I go to The Netherlands in mid-August for 2 years to study. While in NV, I plan to register to vote, change my banking institutions, vehicle registration and driver’s license to NV. However, mid-August I will sell my car and leave my NV residence and go abroad. I do not expect to have an income while abroad. I know I will need to file a tax return in California for this year, but am wondering if California will still consider me a resident while I am living in The Netherlands 2019/2020.
That’s a bit above my expertise level. I’d highly recommend reaching out to your CPA on that one for clarification of domicile. My gut tells me CA would NOT consider you a resident. You may also want to reach out directly to the tax board here https://www.ftb.ca.gov/
pensuion and social security go in nevada bank every month isnt that enough?
No it’s not. I wouldn’t rely on that at all to establish residency in Nevada.
I will be retiring in a few years, My wife and i is planning to buy a house in Nevada and leaving California. However we will be ether renting the house in California or come to California when it’s too hot in Nevada. My question we would like to claim Nevada as our principal resdeancy. What is the guidelines for this please? THANKS
You’ll need to run this by your accountant. That being said you’ll need to prove legitimate residency here in Nevada. You should register to vote here, have your financial affairs here, get your drivers license and license plates here, and make sure you can prove you’re here over half the year. Those are the basics, but again please check with your accountant.
I will be retiring to Nevada, where my kids now live, and be purchasing a home. I will still be part owner of a S-corp based in California where I will be receiving K-1 profit distributions. Can I still avoid paying CAlifornia state taxes?
You’ll need to verify with your accountant, but I believe if you can prove legitimate residency in Nevada you’ll avoid CA state income tax.
I moved to California last year from Georgia for a change of scenery, not realizing the impact the tax would have on me as a small business owner. I travel 80% of the year, and never work in California… maybe 7 days a year max. I do most of my work in Las Vegas or Orlando, so I am trying to move my residency over to Nevada. Is having an address and drivers license enough to do this?
I would say no but check with the California state tax board https://www.ftb.ca.gov/ They’re the ones that would come after you. It would likely boil down to how many days of the year are you in California versus Nevada or Florida so start saving every receipt from gas to a slurpee to a TV and such! If you can prove residency here the majority of the year that would go a long way!
I moved from California in June 2018 to New Zealand. I returned to the US in April 2019 and have stayed with family members for 2 months while looking for property to buy, or rent in Nevada. If I establish myself in Nevada by renting there, registering to vote, register my vehicle and stay there from July 1-Dec 31 will doing so establish my domicile and residency in Nevada. I am retired.
That’s a thin line in my humble opinion. I would likely claim Nevada assuming you lived here most of the year and have your drivers license here in Nevada with the full intent on staying in our great state permanently. I would also recommend you save your receipts from anything you buy from a slurpee to a car that proves you were here in Nevada the majority of the year.
My husband & I live in CA. He got a contract (1099) in Nevada & lives there M-Thursday every week. Company pays for hotel/rental of apartment. Can he claim wages earned as part of this engagement to be a Nevada resident & not pay CA taxes?
I would say no, but that really goes to the CA state board and if they want to pursue you. I wouldn’t do it! That being said, professional athletes pay state taxes for each game they play to the state they play in. So if you were to consider that in the mix it’s a light “maybe”. All in all I’d say no however.
I plan to retire in the next few years and have lived in MT all my life and will probably keep the home we have here for when we come back to visit grandchildren etc. But, we want to move to either Arizona or Nevada–which are more tax friendly to retirees. We will rent not buy a residence there. Can I claim residency in Arizona or Nevada and not Montana as long as I rent there and register to vote there etc.? If so, is there a timeline, for example, after I’ve lived there for 6 months or so? What is the residency requirement for tax and voting purposes?
You’ll need a Nevada license to vote and you’d need to be a resident here to get one. Unfortunately you can’t have a drivers license in multiple states so my gut tells me that won’t fly for residency purposes. Check with your CPA however, but I wouldn’t do it.
Best of luck!
My wife and I are relocating to Henderson Nevada, with the closing our our new home scheduled for 10/14/19. We currently lease an apartment in Hollywood, CA with the lease expiring on 10/30/19.
My dilemma is that I will be taking a major distribution to assist with the down payment of he home and I don’t want to be taxed by California since I am becoming a permanent resident of Nevada.
Is in in our best interest to lease an apartment in Nevada and apply for drivers license and registration our vehicles prior to closing to avoid California state income taxes? Any advise or direction is appreciated. Thank you.
Hi Donald and welcome to Nevada! If you could somehow do a short term loan then do the distribution in 2020 when you’re living here and voting here and such, that would be ideal. That being said if you’re still living in and licensed/voting in California I wouldn’t risk it. ultimately it’s up to the California tax board and I’ve heard they CAN be aggressive. If you’ve lived in CA most of the year I wouldn’t risk it – but that’s just me. Obviously, I recommend you find a good CPA for a question like this as it’s fairly nuanced, but to me it seems risky to try and pull off and the taxes and penalties could be substantial. Also I’m making the assumption that you’re referring to a distribution from a 401k or IRA. Another thought is could you go month-to-month through January and then do the distribution as you’ll be fully situated and licensed here in Nevada and you’ll have lived here the entire 2020 year.
I have not lived in California for the last seven years. I have not even lived in the USA during this time since I live in Southeast Asia.
I do not own any property in California. I registered as a voter there perhaps 20 years ago. I do not own any vehicle in California and this year I am letting my CA driver’s license expire with no renewal in February/2020.
Yet, California still demands a tax return from me. My question, since I am not even living in the USA, how or who do I contact to make it clear to California that I am not and have not been a Calif resident?
Hi Enrique,
That’s frustrating! It doesn’t surprise me because California is one of the most aggressive states to collect their tax revenue. You need to contact the franchise tax board first and explain your situation. Start here with this link Enrique!
Just my 2 cents … and “…If I’m not mistaken” :
If you’re a US national (or had a green card or are considered a “US person”) then you will necessarily be taxed on worldwide income no matter where you live and earn that income – and necessarily taxed at both the federal and state level.
There is no way around paying those Cali taxes unless you come back to the US and establish residency in another state.
Note that there is a ceiling on the earnings; in 2020 it is +- 107k, so that one might not be taxed at all, but this ceiling only applies to what is called “earned income” which = salary, wages, etc.)
This is a tricky area (international double-taxation – USA is the only nation to double-tax).
Look into it, for sure … but it sounds pretty straight-forward to me.
Personally living in Switzerland for over 35 years, yet I still have to pay Hawaii state tax! (along with federal) since Hawaii was my “last domicile” while living in the States. And although I never earned over the ceiling, all my previous unemployment earnings and present Swiss social security and pension earnings were-are considered “unearned” and thus are taxed. Sigh…..
Hi Eileen,
To be candid you’re going deeper into the tax law than I know. I can’t say for certain if you’re right or wrong, and I would say contact a highly qualified tax advisor to be sure either way! I would say it does make sense what you’re saying and my gut tells me you could very well be right!
We are selling our home in CA and plan to rent in Nevada from June 1 on for a year or more. We have a signed rental agreement and will change our address to NV. We both work in CA just over the border. I realize that we will have to pay CA state income tax on that money. My question is will we be considered NV residents once we get drivers’ licenses and register our cars there so that we can then register to vote?
Also, if I receive a State teacher’s retirement from CA, will I still pay CA taxes on that after I move?
Hi Susan, You may pay on your teacher’s retirement in the year you move as a partial resident but you shouldn’t have to do so after that. As far as residency, if you’re registering your cars, voting, and living here (your rent agreement) in Nevada that should suffice however it’s really up to the state of California if they want to pursue you or not. If you don’t have a place in CA any longer that goes a long way as well. If you’re trying to maintain two residences it may become a grey area and your teacher’s retirement may be taxed as well. Again, this is really up to the state of California and I’ve heard they’re fairly aggressive.
i am moving to las vegas. selling my house in CA, and buying a home in NV. i own a one bedroom apartment. what i need to know: if i fulfill all requirement for residency, can i spend 2 month in Europe and 3 months in CA. meaning 4 -5 months in NV is it still considered NV resident.
To the best of my knowledge if you’re a Nevada resident who happens to travel 5 months out of the year you’re still a Nevada resident for tax purposes. Sounds like fun! Enjoy!