California: Taxpayer’s Out-of-State Activity Did Not Change Residency Prior to Sale of Stock

June 29, 2021

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By: Tina M. Chunn, SLAT Senior Manager

At a glance:

  •  The main takeaway: A recent case out of California shows that changing state residency is not a cut-and-dry issue.
  • Impact on your business: You need to affirmatively abandon your “old” state of residence when moving to a new state to avoid complex and costly tax obligations.
  • Next steps: Work with a professional tax advisor to navigate change-of-domicile issues and ensure you complete all of the documentation necessary to support your position in a potential audit.

Contact Aprio’s State and Local Tax (SALT) team to learn more.

The full story:

The California Office of Tax Appeals recently issued a decision in which it addressed whether or not a couple abandoned their California residency prior to the sale of their company stock.[1] The residency determination impacts the state in which the taxpayers report the gain from the sale of the stock, since California treats the sale of stock as the sale of an intangible that is sourced to the taxpayer’s state of residence.

What implications does this case have on future, similar tax situations? Let’s take a closer look.

The case in question

The taxpayers in this case were residents of California through 2007 and then sought to move to Nevada in early 2008. The taxpayers drove to Nevada on February 25, 2008, and secured an apartment in Nevada on February 26 (the term began on March 1, 2008). They obtained a post office box, forwarded their mail, registered to vote, obtained Nevada driver’s licenses, set up Nevada cell phone numbers and bank accounts, had eye exams, changed the address on their life insurance policy and registered their cars in Nevada.

The taxpayers also began the search for a house in Nevada during this time. They made offers on three homes that were not accepted and then finally closed on a home on September 22, 2008 (the apartment lease ended on September 30, 2008).

In May 2008, the taxpayers were first contacted about selling their company and had an initial meeting with the buyer in California. The parties came to an agreement, and the taxpayers signed the various documents in June 2008 in Nevada. The sale closed on July 18, 2008, and the taxpayer received the first of two installment payments in 2008 ($16.7 million); they deposited those payments into their Nevada bank account. The taxpayers received the second installment of $600,000 in 2009.

Meanwhile, the taxpayers were making numerous trips between California, Arizona (where they also own property) and Nevada, spending 90, 19 and 28 days in each state, respectively, for the period from February 25─July 18, 2008. For the period from July 18─December 31, 2008, the taxpayers spent 72 days in Nevada, 24 days in California and 25 days in Arizona.[1]

California’s rules provide that a “resident” includes every person who is in California for other than a temporary or transitory purpose, and every individual domiciled in the state who is outside the state for a temporary or transitory purpose. As such, once a taxpayer is domiciled in California, they remain a resident until they leave for a reason that is not temporary nor transitory.[2] Further, the burden of proof for the change in residency is on the person claiming the change, and if any doubt remains, it is determined to not have changed.[3]

In this case, the issue is whether the taxpayers were no longer residents of California on July 18, 2008 — the date of the sale of the stock. The taxpayers argued that they established their residency in Nevada on February 26, 2008, when they secured their apartment rental and subsequently performed numerous other changes to substantiate their intent to move (all prior to July 18, 2008).

However, the court concluded that the taxpayers did not meet the burden of proof of a change in domicile. The change in permanent residency is not the result of the intent to change but must be based on objective fact. Specifically, the rented apartment served as a temporary residence while the taxpayers were seeking a permanent one. Further, the taxpayers left their personal property in California and spent most of their time there from February 25─July 18, 2008 (90 days in California vs. 28 days in Nevada). As such, the rental of the apartment — while part of the taxpayers’ plan to find a permanent residency in Nevada — did not actually change their permanent home for income tax purposes.[4] Therefore, the gain from both installment payments is subject to California income tax.

The bottom line

Changing domicile for state tax purposes is not a simple act of arriving in a new state and getting a driver’s license; in fact, it is the actions (or inactions) you take in your “old” state that are at least as important as the actions that you take in your “new” state. Your old state will want to see that you have affirmatively abandoned it as your domicile.

Aprio’s SALT team is experienced in handling change-of-domicile issues and the subjective factors that states may look at in your case. We can help you understand how to navigate these situations and maintain documentation necessary to support your position in case of an audit.

We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Tina M. Chunn, SLAT Senior Manager, at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice at for more information.

[1] The taxpayers did not put their California residence on the 2021-OTA-156P market until April 2015 due to the economic recession, the need for continued care of the wife’s father and the husband’s focus on the new business in Nevada. As of December 15, 2017, the house had not sold despite several price reductions.

[2] R&TC Section 17014(a); Cal. Code Regs., tit. 18, §17014.

[3] Appeal of MAZER, 2020-OTA-263P.

[4] The decision did not address whether the taxpayers were no longer California residents subsequent to the sale of the stock since that was the income at issue.

[1] Appeal of: J. BRACAMONTE AND J. BRACAMONTE, 2021-OTA-156P, 03/22/2021.


Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Tina Chunn

Tina is a senior manager with Aprio’s State & Local Tax group. She has over 24 years of experience assisting companies and their owners to minimize their tax liability and maximize their profitability. Some of the industries Tina serves include professional services, manufacturing, warehousing and distribution, telecommunications, real estate, retailers and wholesalers. Tina has extensive experience dealing with corporate tax issues, including state and local tax returns; state and federal tax credits; state and local sales; and use, income, escheat, business licenses and property tax issues.