Nearly nine years ago, we moved from Irvine, California to Las Vegas. The home in Irvine was sold, a home was purchased in Las Vegas, and the belongings went from the Golden State to the Silver State. Cars were re-registered, doctors changed, and no one would say that we didn’t become Las Vegas residents.
But some people like to have it both ways. Nevada’s income tax rate is a very round number (0%), while California’s maximum income tax rate is a ridiculous (in my opinion) 13.3%. That certainly could drive individuals to move in name only. California’s Franchise Tax Board (FTB) realizes that, and they (along with New York State) lead the country in residency audits.
If you really do relocate, a residency audit is a minor annoyance. But let’s say you reside in Silicon Valley, and you buy a home in Reno but keep your home in Los Altos. Did you move? Or did you just move in name?
The Bozo strategy is the latter: moving in name only. I’ll just have that little home in Reno, spend the ski season in Nevada but really continue to live in Los Altos.
In a residency audit, the FTB will look at where you’re actually spending time, where you’re spending money (if eight months of the year you’re patronizing businesses in Silicon Valley, it doesn’t look like you really moved), and a variety of other factors. ( The FTB has an excellent Residency and Sourcing Manual that explains California laws on the subject.)
Given the current pandemic, state revenues are being squeezed. The one government agency where increasing employees increases revenues is the tax agency (especially employees in audit). While I expect to see states cut employees, I’ll be surprised to see anything but minor cuts in tax agencies. We’re also likely to see an increase in audits looking at telecommuting issues. In any case, if you move in name only you’re painting a target on your back for a residency audit.
Tags: BozoTaxTips