One of the threads that we explore in this blog is how living or working in more than one state can affect state taxes.
Do nonresidents of California who made income here owe California state taxes? And how about people who live here only part of the year? There are some complicated considerations involved in determining whether a nonresident or part-year resident has to file a California income tax return.
In this two-part post, we will address some of the questions involved in determining California tax obligations for people who don’t live here all year.
Let’s start by taking note of particular case in which California sought to collect taxes from an inventor who moved from California to Nevada. The long-running case has now reached the U.S. Supreme Court.
The case dates back to 1991, when the California Franchise Tax Board (CFTB) began trying to collect taxes from an inventor who made millions of dollars through a patent on a type of computer chip that was used in early iterations of microprocessors.
The inventor contended that he had left California in 1991 for Nevada. He sued the CFTB, asserting that he was being harassed. A jury in Nevada awarded the inventor a multi-million dollar verdict. Though the amount of the award was reduced on appeal in the Nevada courts, it still stands at $1.2 million.
California tax authorities have appealed the Nevada verdict to the U.S. Supreme Court. California contends that a state cannot be sued in the courts of another state. The Supreme Court heard oral arguments in the case earlier this month.
The inventor’s case is exceptional in the broad constitutional issues it raises. But the nuts and bolts of California state tax compliance for nonresidents and part-year residents is a common concern for many people. We will address those issues in part two of this post.