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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22829
Experience:  Taxes, Immigration, Labor Relations
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Hi, I am a California resident and a veteran who paid the

Resolved Question:

Hi,

I am a California resident and a veteran who paid the State Income Tax since 2005. I was exempted from paying for CA State Tax since 2009 because I was stationed in overseas. Since 2009, I was overseas as military member and now I'm separated from the military as of July 21, 2013. I am a contractor now working for American company in overseas location and my hiring date is July 26, 2013.

I came across this statement on Google, "an individual maintaining a domicile in California who leaves the state for employment consisting of an uninterrupted period of at least 546 days is no longer considered a resident for tax purposes. Spouses and registered domestic partners of an individual covered by this rule are also considered nonresidents when accompanying the individual outside California for at least 546 consecutive days.

However, there are exceptions to this general rule about employment outside the state. An individual maintaining a domicile in California is still considered a resident if that person has annual intangible income exceeding $200,000 or the principal purpose of the absence is avoidance of state income tax. The variety of circumstances causes taxpayers to seek reliable advice from someone with enrolled agent certification.

Return visits to California that don’t exceed a total of 45 days during any year are considered temporary and therefore have no impact on the outside employment rule. Anyone not covered by this rule determines residency based upon the subjective reasoning of facts and circumstances. Enrolled agents located in California can obtain continuing education tax courses involving laws of their state. Any individual who is a California resident remains with that status if absences from the state are only temporary or transitory."

So, my question is:

1. I haven't stayed in California for 45 days in during any year since 2009. Does that make me a non-resident for tax purposes?

2. If yes, does serving as military member in overseas location towards "546 days"?

V/R
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
We need to rely on FTB publication 1031 - you may review the latest version here - https://www.ftb.ca.gov/forms/2012/12_1031.pdf
A resident is any individual who meets any of the following:
• Present in California for other than a temporary or transitory purpose.
• Domiciled in California, but outside California for a temporary or transitory purpose.
You mentioned "546 days rule" - which is used as the safe harbor for those leaving California under employment-related contracts for an uninterrupted period.
Return visits to California that do not exceed a total of 45 days during any taxable year covered by the employment contract are considered temporary. So you cannot combine the days you were overseas from the two separate contracts. Thus - the period you were abroad as military member may not be combined with the period you were overseas starting your hiring date is July 26, 2013. And the period between July 21, 2013 and July 26, 2013 may not be excluded under "45 days rule" because you were not covered by the employment contract during this period.

LEV :

The rules for military personnel are different.
Please refer to the FTB publication 1032 - https://www.ftb.ca.gov/forms/2012/12_1032.pdf
See page 3 --- Generally, for tax purposes, you are considered a resident of the state from which you entered the military. The federal Servicemembers Civil Relief Act (SCRA) provides that:
• A person shall not be deemed to have lost a residence or domicile in any state solely by reason of being absent in compliance with military orders.
A person shall not be deemed to have acquired a residence or domicile in any other state solely by reason of being there in compliance with military orders.
• Compensation for military service is not considered to be from sources within the state where a member is stationed if that state is not the member’s domicile.
For tax purposes, a military servicemember is not considered a resident of California unless he or she is domiciled in California.

LEV :

However - that doesn't mean you may not use "546 days rule" on your 2013 tax return. You may use the safe harbor if requirements will met going forward starting your hiring date July 26, 2013.

Customer:

So, my days in overseas as military member wouldn't count towards 546 days?

LEV :

While overseas as military member you are considered as a nonresident of California for tax purposes regardless of the safe harbor (which used 546 days) - so - there is no need to use the safe harbor.
However - you may not combine two different contracts towards 546 days. You cannot combine the days you were overseas from the two separate contracts.

Customer:

I see what you mean now. So, I would have to wait for another 500+ days to get the state tax exempted.

LEV :

There is no need to wait - you may treat yourself as a nonresident for tax purposes assuming all requirements will meet. However - if for any reason requirements will not meet - your income would be taxable for CA state. So only after 546 day we will know for sure if the safe harbor could be used.

Customer:

I get it now. I'm filling out the Declaration of Legal State of Residence for Tax Purposes right now and there is a section for Declaration of Domicile.

Customer:

options:

Customer:

Subject to both reporting and withholding for that jurisdiction.

Customer:

Subject to reporting, but not withhoulding for that jurisdiction.

Customer:

NOT subject to reporting or withholding for that jurisdiction.

Customer:

I would choose "NOT subject to reporting or withholding for that jurisdiction", correct?

LEV :

That would be correct - if your employment contract will last at least 546 days and the safe harbor could be used. However - if for any reason you will be back before that - penalty might be severe.
Your choice is correct - but I assume you understand possible risk.

Customer:

I see I see. Then, it should be safe to say I'm covered by the safe harbor.

Customer:

Thank you very much for your assistance!

LEV :

Sorry if you expected differently.

Customer:

One last clarification, please. I'm paranoid about CA taxes.

Customer:

So I should be good if I'm under same company for over 546 days outside CA, correct?

LEV :

That is correct - if you will be under the same contract. However - if there will be two separate contracts - and you will return to California let's say for 5 days while between contracts - these 5 days are not excluded under 45 days rule - and that will NOT be an uninterrupted period.

LEV :

If you still will be under employment contract - and will come back for vacation (while under contract) - these days are excluded under 45 days rule.

Customer:

Got it. I really appreciate your assistance!

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22829
Experience: Taxes, Immigration, Labor Relations
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