Multi-State Tax Issue

[Mochina]

In 2020, after my son graduated from an Oregon university, he returned to California (which has been his permanent home) for a couple of months. But then he moved to Portland, OR for a 2-year job. For 2020, I filed an OR tax return and a part-time CA return for him  In 2021, he continued the OR job and lived in OR, but he has maintained a CA driver's license, continues to use our CA home address for his investments on which he earns dividends etc. , and plans to return to California in 2022. For the 2021 return, 1) is OR his state of residency?

2) Does he need to change his address on all returns to the OR address?  3) With a CA address on his 1099s, does he claim this income as CA income and have to potentially file a CA non-resident return?

[LeonardS]

If it is your son's intent to return to California then California considers him to be a resident even during the time he is out of the state.

The following is from the California Franchise Tax Board (FTB) and provides detailed information on how California treats residents that are living outside the state

"Section E

Who Are Residents and Nonresidents 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. See Section L, Meaning of Domicile. A nonresident is any individual who is not a resident

Section L

Meaning of Domicile The term “domicile” has a special legal definition that is not the same as residence. While many states consider domicile and residence to be the same, California makes a distinction and views them as two separate concepts, even though they may often overlap. For instance, you may be domiciled in California but not be a California resident or you may be domiciled in another state but be a California resident for income tax purposes. Domicile is defined for tax purposes as the place where you voluntarily establish yourself and family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed, permanent home and principal establishment. It is the place where, whenever you are absent, you intend to return. The maintenance of a marital abode in California is a significant factor in establishing domicile in California."

California uses domicile as the primary factor in determining residency statue.  This is a complex matter and I have provided a link to the FTB web site addressing the specific questions you have.

Link to FTB site Guidelines for Determining Resident Status

[Mochina]

Leonard, thank you for the info.  So based on the CA Guidelines for Determining Resident Status publication that you refer me to, my son would be considered as domiciled in CA.  The "What form to file" section of the Guidelines would indicate that he should file a CA 540 NR (non-resident) return since he lived in Oregon for a full year yet had significant CA income. But the Who Are Residents and Non-Residents" section indicates that if he is domiciled in CA but living outside of CA temporarily, he is considered also a CA "resident."   This still makes my son's situation unclear.  And when TurboTax asks what state my son is a resident of, is it is really asking for residency or for the state in which he is domiciled?  Also, the answer to the question of whether he should change his address from CA to Oregon on all returns is still unclear.  I might have to ultimately call the CA Franchise State Tax Board, but if there is someone knowledgeable can answer my specific questions, even if it is only about the intent of the TurboTax question, I would appreciate it. 

[LeonardS]

California considers your son's domicile to be California therefore, he is a resident of California and would file a California resident return.  When TurboTax asks what state your son is a resident of the answer is California.  Residency in California is determined by where your domicile is.  Your son's mailing address has no bearing on his residency status it is used for the purpose of where to send forms and information, not as a factor in determining his domicile.  California is one of the few states that use domicile in determining residency for tax purposes.

[Mochina]

Thank you for clarifying, Leonard.  So we tell TurboTax that my son is a resident of California, but to the next question about whether he lived in another state in 2021, do we answer "no" because if we indicate "Oregon" the follow-up question requires us to indicate a date on which he moved to California from Oregon? 

[ErnieS0 · Accepted solution]

No. You would not say your son lived in another state because TurboTax will ask the date he became a resident of the other state.

Instead, in Other state income, tell TurboTax your son made money in a state other than California and select Oregon.

He will have to file a nonresident Oregon return because he earned money there and a resident California return. He can claim a credit on the California return for tax paid to Oregon.

[Mochina]

So based on the domicile concept, my son will indicate that he is a resident of California.  However, how should he answer the TurtoTax question when doing his CA tax return: "What address is your principal/physical residence address?"  His principal address is the family home address in CA because that is his domicile, but then TurboTax adds into the question, "physical address." Am I correct in using the family home address in response to this question?  

[AliciaP1]

Yes, you are correct!

@Mochina