Getting Out of (Tax) Dodge – Trying to Lose California and Other High-Tax-State Residency

In this episode of Corporate Conversations, hosts Anna Tang, Doug Schwartz and Kimberly Kamkar explore the challenges of changing residency from high-tax states like California to low-tax states like Florida and Texas. They cover the legal steps needed to change domicile, the scrutiny by state tax boards and practical tips for genuinely severing ties with your former state. They also discuss the implications of potential new tax laws, such as California's proposed billionaires' tax. This episode provides essential insights for taxpayers contemplating a move to reduce their state tax burden.

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Transcript: Getting Out of (Tax) Dodge – Trying to Lose California and Other High-Tax-State Residency

_{0:00:00.4 Anna Tang: It's been all over the news lately. Taxpayers, from billionaires to just normal folks, are leaving high-tax or blue states like California and New York to take up residence in low-tax or red states like Florida and Texas. But blue states are not giving up without a fight and are telling these people, "You gave up residence here? Prove it." So if you're thinking of fleeing, you need to know what it really means to change residence and what a tax audit feels like. The bottom line is this: it's not easy.}

_{0:00:33.3 Host: Welcome to Nossaman's Corporate Conversations podcast, where our corporate attorneys bring practical insights into the deals, disputes, and legal decisions shaping today's corporate world.}

_{0:00:47.1 AT: Hi everyone, and welcome to the Nossaman corporate team's eighth podcast in the Corporate Conversations series. Today's topic is Getting Out of Tax Dodge: Trying to Lose California and Other High-Tax State Residency. My name is Anna Tang, and I am a former Australian tax lawyer turned US corporate and M&A attorney. I also co-chair the corporate practice group here at Nossaman LLP. With me today are two of my fantastic colleagues who have dealt with these issues for years, and even more so lately, it seems. Doug Schwartz is our federal and state tax expert. So he's been in the trenches advising clients on these issues for decades, even back when California was pretty much a red state. And Kimberly Kamkar specializes in business and nonprofit structures and the tax and governance issues that come with them. Doug and Kimberly, thanks for being here today.}

_{0:01:43.3 Doug Schwartz: Happy to be here, Anna. This is a topic that's near and dear to my heart, mostly because I've been at it for so long and seen so many people get it wrong.}

_{0:01:52.9 Kim Kamkar: And I'll add to that, Doug, it's one of those areas where people think they know a lot more than they actually do and think they can cut corners as a result. So hopefully we can clear up some of those misconceptions today.}

_{0:02:08.2 AT: So the title of our session is Getting Out of Tax Dodge: Trying to Lose California and Other Blue State Residency. So before we dive in, I just want to be upfront with our listeners. So this isn't a political commentary, and it's definitely not a how-to guide for tax avoidance, right?}

_{0:02:27.7 DS: Absolutely. Look, we're lawyers. We're here to explain the legal landscape, not to tell anyone what they should do. And honestly, one of the main themes today is that this stuff is hard. There are real legal standards here, not loopholes. If anyone tells you there's some clever trick to avoid state taxes, run the other way.}

_{0:02:48.5 KK: And again, I would add to that that the stakes are really high. And we're not talking about small penalties here. I know everyone hates taxes, but state tax agencies can come after you for years of back taxes and interest and penalties. They are just as scary as the IRS. And we've seen people who thought they'd "moved to Nevada" end up owing California millions of dollars.}

_{0:03:19.5 AT: All right, so let's get into this. Why are we talking about this now? I mean, people have been moving from high-tax to low-tax states forever, haven't they?}

_{0:03:29.7 KK: They have, but it's really accelerated in the last, say, 20 years. The gap between how blue and red states approach taxation has really just gotten wider and wider. And recently, there have been some major developments that have really put this on everyone's radar.}

_{0:03:47.9 DS: Yes. And let's walk through what's been happening. There are four big things making headlines right now. First, and this is huge, there's a proposed California billionaires' tax likely to make it on the November 2026 ballot. This isn't an income tax, it's a one-time wealth tax. 5% of your entire net worth if you're a billionaire living in California. They're still gathering signatures, but it's polling well. My gut says it passes. We'll talk more about this at the end of our session.}

_{0:04:20.8 KK: And I'll take the second one. This affects a lot of our East Coast friends is what's happening in New York City and state. Mayor Zohran Mamdani just got elected on a really progressive platform, and he wants to fund it with higher taxes. The problem he's facing is the state government in Albany controls a lot of the city's budget, and Governor Kathy Hochul isn't on board with big income tax hikes. So what is Mamdani doing? Well, he's looking at the things he can control, like property taxes and what they're calling pied-à-terre taxes.}

_{0:04:57.6 AT: Wait, what's a pied-à-terre tax? That's a fancy French term, so I know enough of French to know that that's not English.}

_{0:05:05.0 KK: Yeah. Well, it's really, it is a fancy way of saying a tax on second homes. So picture someone who used to live in Manhattan but moved to Florida and kept their nice, shiny, fancy apartment in New York City so they can come back for Broadway shows and museum openings. The mayor wants to hit those folks with a big tax for having that second home in New York.}

_{0:05:30.6 DS: And that's a clever move politically, right? Because those people can't vote in New York City anymore. They're Florida voters now. It's sort of like the hotel tax we always pay anywhere we go. Yes, we get irritated seeing that on our hotel bill, but what are you gonna do? We don't vote in that city. So the third development, and this has surprised a lot of people, Washington state passed an income tax. Starting January 1st, 2028, if you make over a million dollars in Washington, you're paying state income tax. That's a big deal because Washington was one of the last holdouts alongside Florida, Nevada, Texas, and a few others. Massachusetts also implemented a surtax on millionaires in 2023, Maine did so this year, and Illinois is eyeing something similar for their November ballot. But those have always been high-tax states.}

_{0:06:23.0 AT: So, Doug, what you're saying is that the no-income-tax club is essentially getting smaller.}

_{0:06:28.5 DS: Exactly. And that brings us to the fourth thing. The high-tax states are fighting back. They're not just watching people leave, they're trying to make it harder to go. Governor Hochul in New York has proposed an exit tax. Think about that for a second. A tax for leaving.}

_{0:06:45.2 KK: Yeah. It is really starting to feel like the beginning of a tax war between the states.}

_{0:06:51.3 AT: That's right. Each state is trying to sound like their own country, imposing taxes. Exit taxes is basically what people would think from a federal jurisdiction. So I see what we're saying is that we've got all this pressure building up. Where are you seeing people actually leaving to?}

_{0:07:08.3 DS: Well, the big three destinations are Florida, Nevada, and Texas, the biggest states that still have no income tax. And here's the interesting part. Those states are protective of the people who move there. If California or New York tries to chase someone down in Florida, Governor DeSantis isn't gonna just roll over. Neither is Governor Abbott in Texas. There's real political resistance to letting the high-tax states reach across borders.}

_{0:07:34.9 KK: And California tried something like this many years ago when it tried to tax the pensions of former California residents who had long since left for Florida. And Florida basically told the California agencies to pound sand, and you know there is a lot of sand in California and Florida. And Congress, in response, eventually passed a law saying that states could not do what California was trying to do. The law is basically like a political shield, saying if you move to Texas or Florida, you've suddenly got a whole state government that has your back if California or really any other state—but what other state does this? Comes knocking.}

_{0:08:21.0 AT: So that's really interesting. Okay, let me ask what might be a naive question, but I think one that a lot of listeners are probably asking right now. So we have the Internal Revenue Code for federal taxes. And I know the IRS has specific tests for when someone is a tax resident of the U.S. Don't the states just follow the same rules?}

_{0:08:45.3 DS: You'd hope so, right? But no. The federal tests are actually pretty clear. If you're a non-citizen, you're a tax resident if you have a green card or you spend a certain number of days physically in the U.S. over a three-year period. But states, they do their own thing entirely.}

_{0:09:04.3 KK: And importantly, states like California and New York use this concept called "domicile". And the feds just don't use that concept. And I'm sure we'll get into the concept of domicile later, especially at the end when we talk about the proposed California billionaires tax, but it's a really big deal for understanding how many states think about residency and whether a person is a resident of that state.}

_{0:09:36.6 AT: Okay, so this sounds already much more complicated than I'd hoped and what I'm used to as an Australian. But at least the states are consistent with each other, right? So if you're not a California resident, that means something similar to not being a New York resident, right? I mean, I would assume.}

_{0:09:55.8 DS: Anna, I hate to keep sounding like Debbie Downer here, but also no. There's no agreement between states to make their tests consistent. And honestly, why would there be? Each state's goal is to collect as much revenue as possible, not to make life easier for taxpayers.}

_{0:10:14.4 KK: Yeah, the goal is never easier for taxpayers. Really, as long as a state isn't violating the Constitution, so think big picture, like due process, interstate commerce, the feds will pretty much let states do whatever they want. And that creates real headaches for the real people who have to actually file their taxes. Because you... And you may have saw this coming, but you can literally be claimed as a tax resident by two different states at the exact same time. And guess what? It's on you to figure it out.}

_{0:10:51.0 AT: So let's make this a little bit more relatable to our listeners here. Let's talk about an example of how states approach this. We've discussed quite a bit about New York City and State. How do they determine tax residency?}

_{0:11:04.1 DS: So New York State determines tax residency two ways: domicile in the state, again, that word domicile, or statutory residence. That is, you have a permanent place of abode in New York State, think back to the pied-à-terre that Kimberly discussed earlier, for over 10 months, and you spend 184 days or more there during the year.}

_{0:11:28.4 KK: And New York City has the same rules, which makes sense if you think about it, because otherwise someone could be a tax resident of the city and not the state.}

_{0:11:39.9 AT: All right, so let's turn to California, where all three of us are based, because that's also in the news and it's also where we are. Doug, before we get into the actual residency tests, can you give our listeners a sense of who's involved when there's a residency audit? I mean, what agencies are we dealing with here?}

_{0:11:59.3 DS: Sure. So your first contact is going to be with the Franchise Tax Board. Everyone calls it the FTB. They handle all income taxes in California: individuals, corporations, trusts, everything. When you get that first pay us notice, it's gonna be from the FTB.}

_{0:12:17.4 KK: And I should mention, once the Franchise Tax Board, the FTB, starts an audit, they basically never say, "Oops, our mistake, sorry to bother you." It's just not how it works. And this is really important: the taxpayer bears the burden of proof with the Franchise Tax Board. So you have to show that the FTB is wrong by this standard called preponderance of evidence, which basically means you need to be 51% in the right. And ties, 50%, goes to the Franchise Tax Board.}

_{0:12:56.7 DS: She's not wrong. But here's the good news: if you disagree with the FTB, you can appeal to something called the Office of Tax Appeals, or the OTA. That's an independent panel of tax experts, and I have to say they're pretty fair. They'll rule for the taxpayer when the facts support it, and they'll rule for the FTB when the facts support that. It's a neutral, non-political forum.}

_{0:13:20.7 AT: But what if the OTA rules against you, Doug?}

_{0:13:23.8 DS: Well, then you go to California Superior Court, but there's two catches. Number one, you have to pay the tax, then sue to get it back. Number two, the judge and his or her clerks usually will not have any tax expertise at all.}

_{0:13:39.1 AT: So that all sounds pretty stressful. I'm imagining these audits can get pretty intense.}

_{0:13:46.1 DS: Oh, intense doesn't even begin to cover it. Depending on who you are and how much money is at stake, a residency audit is like a full-body search at airport security, except instead of 20 minutes, it lasts for weeks. The FTB will look at everything. They'll interview your neighbors, they'll interview your veterinarian, they'll pull credit card receipts and phone records. If you claim you weren't in California on a particular day, but you stopped in Barstow on your way to Vegas and bought a Slurpee with your Visa card, trust me, they will find that receipt.}

_{0:14:19.6 KK: Yeah, Anna, Doug's not exaggerating. We have two real stories that will show you sort of just how far the FTB will go. The first is Gilbert Hyatt. He was an inventor and entrepreneur who moved from California to Nevada back in 1991. He was about to get a really big payout from microprocessor patents, and he wanted to avoid California taxes. The Franchise Tax Board came after him saying, "Not so fast, you're still a California resident." And they came after him for millions. And here is where it gets crazy: the Franchise Tax Board agents actually went to his house in Nevada without a warrant, and they dug through his trash. They literally went dumpster diving looking for evidence.}

_{0:15:11.8 AT: That's crazy. I mean, they must be taking their job so, so seriously to be willing to go dumpster diving. I mean, you must be making this up.}

_{0:15:21.1 KK: I wish I were. I don't know that I would go dumpster diving for my job, but the Franchise Tax Board really did. Hyatt ended up suing the Franchise Tax Board for harassment and invasion of privacy, and in 2008, a Las Vegas jury initially awarded him about 388 million in damages. But it took years of more litigation and took multiple trips to the US Supreme Court, the actual Supreme Court of the United States and eventually that award got reduced significantly. But the record confirms what the Franchise Tax Board did, including the dumpster diving. So we're not pulling this from some random anti-tax blog; this is part of the opinion and record of the U.S. Supreme Court.}

_{0:16:15.2 DS: And here's my favorite story. Or maybe favorite isn't the right word. There was a couple who lived in northern New Jersey but loved the Manhattan scene: Broadway, museums, nice restaurants, all that. So they kept a studio apartment in Manhattan. Believe me, it was tiny. They'd drive in the city, do their thing, stay overnight, and drive back the next day. The New York tax authorities claimed they spent enough time in the city, remember, the test is 184 days or more to be taxed as residents.}

_{0:16:46.7 AT: So what was their basis for taking that view?}

_{0:16:52.0 DS: Based on their E-ZPass. They had one of those electronic gizmos on their dashboard so they wouldn't have to stop at the toll booths at the Holland and Lincoln Tunnels. The tax authorities got those records and knew exactly when they entered and left New York City. And here's the kicker: if they went on Saturday evening and they came out Sunday morning, that counted as two days, not one, towards the 184 days, even though less than 24 hours had passed.}

_{0:17:21.9 KK: The lesson there is assume that everything you're doing is being tracked, because it probably is. This was years ago, and GPS on phones and other electronic conveniences have just gotten better and better at tracking people, and this is one of the downsides of that.}

_{0:17:42.1 AT: I want to go back to your New Jersey story. So New Jersey is also a high-tax blue state, right? So why would New York even care about claiming these people?}

_{0:17:53.7 DS: Well, that's a great question, and it shows how irrational this can get. Remember what I said earlier: a state's goal is to squeeze revenue, not to make the system make sense. There are these multi-state metro areas, for example, New York, New Jersey, Connecticut; Pennsylvania, New Jersey; Wisconsin, Illinois, Indiana, where commuters constantly cross borders. Usually the state tax agencies duke it out and figure out who files where, but nobody coordinates to make it easier or fair for the taxpayer.}

_{0:18:26.5 KK: Yeah, and I guess we're a little lucky because California is actually different because our big metro areas aren't near any state borders. The closest thing we have is Incline Village in Lake Tahoe, which is right on that Nevada line, but that's not anywhere near the size or population. And I guess a lot of people who do end up fleeing California try to set up residency in Nevada, but since Nevada has no income tax, there's no competing state agency. So it's just you versus the Franchise Tax Board, and trying to convince them you really live in Nevada even though you are a stone's throw away from California is a little bit difficult.}

_{0:19:12.8 AT: So let's talk about what this means in practice. So what's actually at stake here? So, if you successfully stop being a California resident, what does that actually mean? So, do you just stop paying California taxes entirely?}

_{0:19:26.4 KK: Not exactly. And this is a good question because this distinction is really important. Becoming a non-resident doesn't mean you're totally free of California taxes. You still have to pay California tax on what's called California-sourced income. So things like rent from California property, or gains from selling California real estate, or money from services you perform in California, or business income that flows through partnerships or LLCs based on how much business activity they had in California. I'm hoping you see a pattern.}

_{0:20:06.7 AT: Yeah. So what you're really saying is it's where the money comes from, not necessarily just where you live.}

_{0:20:13.9 DS: Exactly. Let me give you a concrete example. Say someone wants to leave California before a big payday. If it's an asset sale of a California-based business or you're selling California real estate, moving to Texas doesn't help you. That gain is still California-source income and you're still paying California taxes on it.}

_{0:20:34.9 KK: But Doug, and this is where it gets interesting, if the event is something like selling founder's stock in a tech startup, for example, then terminating California residence can actually potentially avoid California taxes. And I know this is a little confusing, but the key is that the move has to be completed and, I'm gonna steal one of your phrases, Doug, old and cold before the sale happens. So if you leave California the week before your startup gets acquired for 500 million, the Franchise Tax Board is absolutely gonna challenge that, especially if the deal terms were already negotiated before you moved. That... Honestly, that's waving a red cape before a bull as far as the Franchise Tax Board is concerned. But you'll have a much better chance of successfully making that argument if your move out of California took place long before that deal was ever thought of.}

_{0:21:35.4 AT: Okay, so this is all really helpful context. Let's move on and dive into the actual legal tests now. So how does California decide if you're a tax resident of California?}

_{0:21:48.6 DS: So there are two ways California can claim you as a resident. And this is where the concept of domicile comes in. Lord knows we talked enough about domicile, so let's try to define it. First, you're a resident if you're in California for other than a temporary or transitory purpose, even if you're technically domiciled somewhere else. So even if your domicile is Nevada, if you're spending all your time in California, they can still get you. Second, you're a resident if you're domiciled in California, even if you happen to be physically outside California for some temporary purpose, like a work assignment abroad.}

_{0:22:27.2 AT: Okay, Doug, you said that you would define domicile, but you didn't do that. I think it's now time to let everyone in on the secret and let us know what it actually means. So I know what it means in plain English, but what does it mean legally for tax purposes?}

_{0:22:41.5 DS: Yes, so let's define it now. Legally, domicile is your fixed home, the place you ultimately return to after trips for business or personal reasons. Think of it as your home base, or think about it as the place you would return if, say, you were on a cruise for several months on the high seas. And here's the critical part: you can only have one domicile at a time. So if you establish a domicile in California, you can't just say, "Now I also have a domicile in Nevada." You have to actually change your domicile from one place to the other.}

_{0:23:17.9 AT: And I'm guessing the FTB doesn't make that change easy.}

_{0:23:22.6 KK: That was a great guess, Anna, 'cause you guessed right. Once you're domiciled in California, the Franchise Tax Board's determination that you're a resident is presumed correct. You have to prove them wrong. The burden is on you. And as I said earlier, ties go to the Franchise Tax Board, so you really have to make your case.}

_{0:23:44.2 DS: And here's the key thing: this is all based on facts and circumstances, not what you say you intended. You can tell the FTB, "I intended to move to Nevada," until your voice is hoarse, but if your actions say otherwise, that's what matters.}

_{0:24:00.4 AT: Okay, so let's say I'm a California resident, which I am, and I want to change my domicile to Nevada or Texas. Kimberly, what do I actually have to do to make that happen?}

_{0:24:13.5 KK: Well, first, and this is big, you do need a new home in the new state. And ideally you own it rather than you rent because that shows commitment. You've put down a down payment, you've taken out a loan, it's a bigger deal. Second, and this one is also pretty big, your California home cannot be available to you. You can't keep it sitting there so that anytime you're in town you can just stop by, take a nap, grab a coffee. You have to either sell it or rent it or just make it unusable for yourself.}

_{0:24:51.9 DS: And it's not just the house. Your stuff has to move too. Clothing, furniture, artwork, personal belongings, they all need to go to the new home. If there's not enough room, put things in storage, but make sure the storage facility is in the new state, not California.}

_{0:25:09.4 KK: And if that doesn't sound like enough of an administrative headache for you, now come the lifestyle stuff, because this can be a long list. Your spouse and kids should move with you because, again, that shows commitment. The kids should be in local schools showing intent that you do not intend to move back. You gotta redirect your mail, get a new driver's license, reregister your cars and boats if you have them in the new state, open bank accounts locally, register to vote in the new state. If you have any spare time and you like to do these things, join local clubs, churches, gyms, whatever makes sense for your life. The big lifestyle things, because the goal is to show that you're actually living a life there and you're building a life there. You're not using it just as a tax address.}

_{0:26:06.1 DS: And get local doctors, dentists, accountants, lawyers, all of that. It sounds like a lot, and it is. But remember, the FTB is going to look at all of this. They want to see a real move, not just a paper move.}

_{0:26:21.7 AT: So you really do have to cut ties and really have to mean it.}

_{0:26:25.2 KK: There's no way around it. You've gotta mean it.}

_{0:26:28.5 AT: All right, so let's say someone does all of this. Moves, sells their California house, registers to vote in, say, Texas, the whole shebang. I'm guessing California still has tricks up its sleeve, right?}

_{0:26:42.1 DS: Oh, yeah. Even if you successfully change your domicile, you still have to be careful about how much time you spend back in California. If the FTB decides you're in California for other than a temporary or transitory purpose, as I said earlier, you're a resident again, even if you're domiciled elsewhere. And here's the magic number. Under FTB regulations, if you're in California for more than nine months in a tax year or calendar year, there's a rebuttable presumption that you're a California resident.}

_{0:27:14.7 AT: Rebuttable. So basically you're on the back foot again. You're the one that has to argue against it.}

_{0:27:20.3 DS: Theoretically, yes, but in practice, that presumption is almost never overcome. So rule number one: don't be in California for more than nine months during the year.}

_{0:27:31.5 KK: But I'll add to that, Anna, staying under nine months doesn't automatically make you safe either. There's no corresponding presumption of non-residence. So the question then comes, what can you do in California without triggering these types of problems or inquiries? Well, coming back as a tourist, visiting friends or family for short periods, that should all be fine. But the key there is that you actually have to act like a visitor. So visitors stay in hotels, they crash with friends for a few days. They definitely don't have a fully furnished house or apartment just waiting for them whenever they feel like it.}

_{0:28:17.7 DS: Yes. Having a vacation home in California after you've gone through all the trouble of moving your domicile, that's asking for trouble. The FTB will look at that and say, "Why'd you keep this place if you're really a Texas resident?"}

_{0:28:31.1 AT: So this raises a practical question. A lot of people who leave California, they will still have business or property here, right? So what if you're a non-resident but you still own, say, an apartment building in LA, or you've got a consulting business with California clients? I mean, just simply saying you've got to cut ties it's not as simple. How do you manage all of that without accidentally becoming a California tax resident again?}

_{0:28:59.2 KK: That is a really great question, Anna. And this is where it gets a little sticky. If you have a California business, you need to find a way to run it without being here constantly, basically, is our response. That might mean delegating to trusted employees or partners who can handle the day-to-day operations so you don't have to visit that apartment building every day and fix the plumbing yourself. But I understand some businesses are harder to do that with. Like if you're a doctor or lawyer or architect who actually does need to be face-to-face with clients, that can be really tough. But if you've got a more turnkey operation, so a store, a manufacturing facility, something like that, it's a lot more doable.}

_{0:29:48.3 DS: And the good news is technology helps a lot here. Video conferencing, email, remote collaboration. Courts have recognized that you can supervise a business virtually without its counting against you for residency purposes. So use Zoom, use Teams, use whatever. If you do have to come back to California for business, keep the trips short and, as Kimberly suggested earlier, stay in hotels, not a company apartment.}

_{0:30:16.7 KK: Yeah. And the same idea applies to investment real estate. Owning apartment buildings in California doesn't automatically make you a resident. So it's about how involved you are. If you're constantly coming back to deal with the tenants and supervise repairs and be hands-on with everything, that looks like you're here for more than a temporary purpose. But if you hire a property manager and you visit occasionally and head out, that's different.}

_{0:30:48.3 AT: So essentially the message that you're trying to convey here is to delegate and keep your distance.}

_{0:30:55.7 DS: Exactly. If someone absolutely insists on being hands-on with California property, they should think about selling the California property and buying something in their new state, maybe even through a 1031 exchange to defer the taxes. That's a whole different subject, but that might be a strategy to cycle out of your California real estate into, let's say, Nevada or Florida real estate.}

_{0:31:19.0 AT: So I think we need to be sensitive about this or realistic about this. So we're talking about flesh and blood human beings with obviously their lives. Are we really saying that to cease to be a California tax resident, they need to pull their kids out of their school, drop all of their trusted doctors and CPAs and other professionals, so the whole shebang? I mean, that's a lot to ask for.}

_{0:31:47.4 DS: Well, Anna, in a word, yeah. This all points to the process not being a paperwork exercise or magic trick. You need to be frank with yourself and your family about whether you really want to move, whether it's worth the tax savings, and whether being angry with the California tax system is enough reason to disrupt you and your family's lives.}

_{0:32:09.4 KK: Of course, on the flip side, sometimes you just can't get to 100%. There just is no such thing as perfect. We're human. So if you, for example, have a doctor that you really like in California for a continuing condition and they know your history and you want to continue using them, you can, and you should be able to. You just have to have a really good explanation to the Franchise Tax Board for why you're continuing to use them despite having moved. And on the flip side of that, you gotta actually be able to prove your other factors even stronger to show the Franchise Tax Board, no, this is my only link. And when you are cutting your other ties to the state, in a lot of cases, it actually is a little more logical to go with local folks. For example, if you're moving to Florida, why wouldn't you, say, get a Florida-based attorney to redo your wills and trusts and other estate planning documents based on local Florida law? So there's a little bit of gray area, there's a little bit of flexibility, but you just have to consider that California is a community property state and Florida isn't, for example.}

_{0:33:28.1 AT: Yeah, I get that. Obviously if you're living in Florida, you want your wills and estate planning documents to be compliant with Florida law as opposed to California law. So that makes sense. I have another practical question. So I'm guessing most people who move out of California, they don't necessarily plan to move on New Year's Day. So what if you leave, say, in the middle of the fiscal year, say June? How does that work in terms of your taxes for that year?}

_{0:33:57.9 DS: Good question. When you move mid-year, you'll file what's called a part-year resident return, a California 540 for part of the year you were a resident and a 540NR for the non-resident portion. But remember the nine-month rule. If you're in California for more than nine months total, they'll treat you as a resident for the whole year. So if you want to establish residency that calendar year, you need to be out by the end of March at the latest.}

_{0:34:24.1 KK: Here's a fun twist to add to that. And by fun, I am being ironic. California doesn't just look at your actual income during your residency period and apply normal tax rates, because of course that would be too easy. No, they annualize your income. Basically, they project it out for a full year and then they apply the highest applicable rate and then they prorate that tax based on how many days you were a resident.}

_{0:34:54.5 AT: Of course. So they're basically squeezing as much tax out of your time as possible.}

_{0:34:59.7 DS: Exactly. California will find a way to hit you with the highest possible rate, which, by the way, tops out at 13.3%. That's among the highest in the country. As we said earlier, a state's goal is to get as much revenue as possible, not to be "fair".}

_{0:35:17.5 AT: Sure does sound that way, Doug. Okay, I think we're running short on time, but I want to make sure we come back to something that we mentioned at the beginning of today's podcast: the proposed California billionaires tax on the November ballot. Kimberly and Doug, can you tell our listeners more about how that would actually work?}

_{0:35:38.9 KK: This is an interesting one. The proposed tax would be considered a one-time 5% levy on the net worth of billionaires who are California residents. And we're, I mean, we're talking total wealth, not just income, but the value of everything you own.}

_{0:36:00.2 DS: And here's the kicker. If the tax passes this November, then it applies retroactively to any billionaire who was a resident of California at the start of 2026. In other words, the sponsors say, "Are you gonna leave California this year to avoid the tax? Forget it." We mentioned earlier that the U.S. Constitution limits a state's tax reach, and there are a host of constitutional issues here in trying to tax someone who has legitimately left California before this thing becomes law. Plus, this brings up the issue we raised earlier about California trying to collect from people who have left. Again, Florida or Texas are not likely to tell California, "Oh, you want to come to collect from our billionaire residents? Come on down." That's not gonna happen.}

_{0:36:49.4 KK: Yeah, and if you think Florida and Texas are not happy about this, you can just bet the billionaires are definitely not thrilled about it either. There's been a real battle of the initiatives, as we sometimes call them. Folks like Sergey Brin from Google are reportedly raising around, I think it's around 80 million right now to push competing ballot measures that would make it harder to create new taxes. Eric Schmidt, Michael Moritz, Chris Larson from the crypto world, also, they're all backing initiatives to put the brakes on this too.}

_{0:37:29.1 AT: And this is all going on the same ballot?}

_{0:37:32.9 DS: That's right. And the initiative with the most yes votes prevails. It's like Thunderdome, but with five fighters, not just two. It's going to be an interesting November. And you can bet that if the wealth tax passes, we're gonna see a whole new wave of residency changes or attempted changes by people who suddenly have a very strong incentive to not be California residents any longer.}

_{0:37:57.4 KK: Honestly, and that's why we might be seeing a lot more aggressive enforcement by California tax agencies coming up. They're, I mean, they are not gonna let billions of dollars walk out the door without a fight. The litigation is going to be endless.}

_{0:38:15.7 AT: Wow, it really does feel like we're just about to enter a new era of state tax competition and all states are fighting it out. Do we have any final thoughts for our listeners?}

_{0:38:27.5 DS: I'd just say don't try to wing this. If you're seriously thinking about changing your residence for tax purposes, work with professionals who know this area. The stakes are high, the rules are complicated, and the FTB is watching.}

_{0:38:42.2 KK: And as we said before, we're all human. So be honest with yourself about whether you're really ready to move or whether your family is able to move. This can't be a paperwork exercise, and it's okay to take a stock of everything going on and make the decision not to do this because it's a huge life change. If you aren't willing or able to build a life somewhere else, don't go through the pretense of trying to build one anyways. The Franchise Tax Board will figure it out, and it will be a very expensive enterprise.}

_{0:39:29.7 AT: So if I'm hearing you guys correctly, the bottom line is this: losing California tax residence isn't a case of Hotel California where you can never leave, but it does require real commitment and real planning. And the tax result has to match your actual life. On that note, I want to thank Doug and Kimberly for joining me today. This was incredibly informative. Thank you. And thank you to all our listeners for tuning in to this episode of Corporate Conversations. For more information on this topic or other corporate matters generally, please visit our website at nossaman.com. Don't forget to subscribe wherever you get your podcasts so you don't miss an episode. Until next time.}

_{0:40:16.7 H: Corporate Conversations is presented by Nossaman LLP and may not be copied or rebroadcast without consent. Content reflects the personal views and opinions of the participants. Statements provided in this podcast are for informational purposes only, are not intended as legal advice, and do not create an attorney-client relationship. Listeners should not act solely upon this information without seeking professional legal counsel}