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State taxes and residency rules: in California and elsewhere

We naturally write about offshore account tax compliance a lot in this blog. After all, the IRS has been devoting considerable attention to enforcing increasingly stringent laws on foreign account reporting.

But foreign accounts are not the only tax issues that span multiple jurisdictions. Right here in the U.S., issues regarding residency in multiple states can have significant tax implications.

Indeed, California is known as one of the more aggressive states in seeking to collect taxes from former residents who have left for other states — particularly states with lower taxes.

America is an open country. It doesn't require some sort of internal passport to move from one state to another. And many people who move to a new state understandably may spend considerable time in their former state. It is only natural for people to still have connections there.

But how long can you reside in a former state without triggering income tax liability there? If you spend more than half the year in the old state, incurring tax liability could be a concern.

Moreover, state revenue agencies have an incentive to try to show residency. That way they can seek to collect state taxes even from people who have moved away. It may also be necessary for taxpayers who earned income in the old state to file a non-resident tax return there.

In short, states are becoming increasingly sophisticated in their efforts to tax people with ties to other states.  In a mobile society like ours, that means taxpayers should be aware of residency rules and respond to the requirements accordingly.

Source: CNN Money, "Perils of moving to a no-tax state," Jeanne Sahadi, June 18, 2013