dancalio[at]yahoo.com (Daniel P) wrote:

- quote -

Daniel, I'm sorry, I was on the road for a couple of weeks
and didn't have an opportunity to respond.

I truly don't have enough information to be able to give you
any practical advice; all I could do is give you some idea
of what the rules are. I do think you should consult a
knowledgeable professional before you take a position.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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"Gene E. Utterback, EA" <eagent[at]alliancetax.com> wrote:
- quote -

.... lots of snipping ...

- quote -

Gene, I'm sorry I have been out of town and not able to
respond to your thoughtful post. I really think I could
help you keep some of your clients out of California
residence. I have won quite a number of these cases over
the years, if not at audit then at the protest level.

The fact is that California law distinguishes between
domicile and residence. A person domiciled in the state is
a nonresident if he is outside the state for a purpose that
is not temporary or transitory (because such a person does
not meet the definition of a resident in CRTC Sec. 17014).
The nature of the absence is a matter of facts and
circumstances, and it can be tedious and time-consuming to
assemble the evidence to show that the absence is not
temporary. But it certainly can be done in many cases. Of
course it's always better if we can advise the clients
BEFORE they go to the foreign country rather than AFTER they
return to California to live!

There are quite a lot of State Board of Equalization
decisions involving expat employees, mostly decided with
regard to tax years before the effective date of the
18-month safe harbor rule. It may be worth your while to
read through some of them and see what facts have generally
led to successful results for the taxpayer. I can send you
a list if you like.

It is outrageous for an FTB auditor to argue that a person
must relinquish U.S. citizenship to become a nonresident of
California. That is just pure nonsense. It is also a
citizen's right to retain the right to vote in the last
place where he or she was registered, and that has nothing
whatever to do with residence. We would not argue in these
cases that the individual had established a new domicile in
a foreign country. These clients probably all remain
domiciled in California (and voter registration is an
indicator of domicile), but that doesn't mean they are
residents for tax purposes.

California doesn't conform to IRC Sec. 911, which is why the
foreign income exclusion doesn't apply.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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dancalio[at]yahoo.com (Daniel P) wrote:
- quote -

snip

- quote -

Do you compensate your parents for the work they do for your
business?

You do not determine your California source income (assuming
you are a nonresident) on the basis of time spent in
California, because yours is not a service business. It
sounds as though you are just selling tangible personal
property. In that case, your net income from that business
must be apportioned by a three-factor formula, consisting of
the ratios of (1) California property to property
everywhere, (2) California payroll to payroll everywhere;
and (3) California sales to sales everywhere. California
sales are those that are shipped to customers in California
or that are shipped from California to other places where
your business is not subject to an income tax. The three
percentages are added together, with the sales percentage
included twice, and divided by four to determine the
percentage of your business's income that is subject to
California tax.

Based on what I know (which is nowhere near enough to
express an opinion on which I would want you to rely), I
would think a conservative approach would be for you to
consider yourself domiciled in California (and therefore not
protected by P.L. 86-272), but a nonresident and therefore
taxable only on your California source income.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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"Katie Jaques" <katiej_1958[at]yahoo.com> wrote:
- quote -

Katie - as you are located in San Diego, I will of course
defer to your experience. Though I have had several clients
over the years who were California residents before they
moved overseas. In every single case I've ever dealt with,
California has insisted that for tax purposes they were
still considered California Residents. Many of the Ex-Pats
I've worked with have also qualified for the Foreign Income
Exclusion on their Federal returns, but California has not
allowed that exclusion on the California state return.

California Franchise Tax Board Publication 1031
(http://www.ftb.ca.gov/forms/03_forms/03_1031pub.pdf)
discusses Residency Status and points out that the trick, or
trap if you will, focuses on your intent and the strength of
your ties to California. Example #5 on Page 3 says
(paraphrased) - You receive and accept a permanent job offer
in Spain. You sell everything you own in California and move
the entire family to Spain with NO INTENTION of returning to
California. Under these circumstances you cease to become a
California on the date you move.

Some of the other examples where you remain a resident for
tax purposes include things like:

1 - Working outside of the U. S. for 16 months - taking your
family with you, BUT your employment contract says you will
be moved back to CA at the end;

2 - You work in Saudi Arabia for 15 months, putting your
stuff in storage, keeping your driver's license and voter
registration in CA;

The thing I've bumped up against is this - if you keep your
U. S. citizen ship, you are entitled to vote. If you left
CA with no intention of returning, but kept your U. S.
citizenship, in what state would you be entitled to vote.
Please note the word entitled. In the cases I've dealt with
the CA FTB has taken the position that unless U. S.
Citizenship was forfeited, which it never was, that the
keeping of your U. S. citizenship was evidence of an
intention to return to the U. S. and since no change of
residency had ever occurred, by moving to a different state,
that CA was within their rights to consider the taxpayer a
resident for tax purposes.

I have "CA clients" in Mexico (hard to argue, I know),
Italy, Nairobi, Saudi Arabia, Canada, Australia, and Costa
Rica. All of my clients have the intention of returning to
the U. S. and none have ever established residency in a
state other than CA, so I will have to read CRTC Sec. 17014
to see if they are entitled to any relief.

Gene E. Utterback, EA

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Well, so, have we settled everything?

I was hoping some of you could reply to my followups but I
understand you're all probably too busy to give me any more
of your valuable time.

As it stands now, I think I'll just use the "facts and
circumstances" test to show that my absence from California
is more than just transitory. I'll then pay a prorated tax
based on the 1 month per year I'm in California.

I like the safe harbor idea, but there's some disagreement
here as to whether I qualify since I don't have a contract
per se. Perhaps I could just fall back on that as a backup
plan if there's any doubt of the facts and circumstances.

I'd still appreciate if anybody could respond to my
followups from last week, but if not, I appreciate all the
help you gave.

All the best,
Daniel

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Daniel P wrote:
- quote -

It applies.

- quote -

As long as you can show your intent to stay for the safe
harbor period or longer, you would be a nonresident. See
Katie's comment on your stay in Thailand as not being
temporary or transitory.

- quote -

There are a variety of rulings on taxpayer appeals that have
treated taxpayers as nonresidents even though they still
maintained some ties to CA such as home ownership and school
attendance by their children.

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"Gene E. Utterback, EA" <eagent[at]alliancetax.com> wrote:

- quote -

Thanks for the feedback Gene. I really hope this isn't the
end of it. Others have posted how I might be ok under the
"safe harbor" or "facts and circumstances" test.

If it's as cut and dry as you say, and it very well may be,
that just seems extremely unfair. Normally taxes have some
sort of justification of benefits received -- e.g., good
roads in California are what I get for giving them a
percentage of my salary; we're not living in the old days of
the King collecting taxes to build his latest palatial
expansion. But I can't see what sort of benefits apply to a
taxpayer who is not resident and ostensibly is not using any
of the services of the state (I have no kids going to
schools, I have no property for the police to protect,
etc.). On top of this, imagine one who isn't resident for 8
years and then comes back to live in a separate state.
Isn't that just a big dose of injustice to make this person
pay a state, far away, a not insiginificant percent of all
of his/her income?

I remember recently reading a post on one of these
newsgroups about a tax-avoiding police officer. In the
article, the tax prosecutor for the government was making an
impassioned case about how it's just obscenely unjust for
someone to use the services of the state yet not pay their
share. It would be ironic if the same system would force me
to pay state taxes.

Thanks,
Daniel

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DORFMONT[at]aol.com (Linda Dorfmont) wrote:

- quote -

Thanks for the information Linda. I looked into the IRS
information and I don't think I can qualify for the bonafide
residence as I won't have a full non-interrupted year in
Thailand. I would have to miss visiting my parents for
Christmas. I'll have to stick with the 330 day test and
hopefully find another way to show California why I don't
owe them my money (besides the obvious facts that I am out
of the state indefinitely and not using any of the services
that would at least partially justify my donating a large
chunk of my money to the state and I don't even have any
intention of returning as a resident).

-Daniel

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"Gene E. Utterback, EA" <eagent[at]alliancetax.com> wrote:

- quote -

Gene, unlike many other states, California does not consider
a domiciliary to be a resident, necessarily. He may still
be domiciled in California, but since it appears his absence
from the state to run his business in Thailand is not for a
temporary or transitory purpose, I believe he is probably
(based just on what we know) a nonresident. See CRTC Sec.
17014.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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"A.G. Kalman" <glendale202-mtm[at]yahoo.com> wrote:
- quote -

snip

- quote -

Alan, I didn't consider the safe harbor applicable here
because it did not sound as though there was an employment
contract involved in the OP's situation. I really don't
know how strict the FTB wants to be in applying the safe
harbor statute (haven't had or heard about a case where it
was an issue), but I would suggest that (1) there must be a
contract because that's what the law says, and (2) the wise
would have it in writing.

However, even if the OP is still domiciled in CA (which he
may be), it sounds to me as though his absence is not for a
temporary or transitory purpose. Therefore I think he is
probably a NR under the normal facts & circumstances test.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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katiej_1958[at]yahoo.com (Katie Jaques) wrote:
- quote -

Hi Katie. I've seen "Katie in San Diego" on these boards
quite a bit and was hoping you'd opine on my situation.

I know the states are skeptical of changing domiciles, but
it is abundantly obvious to me that I meet all three
requirements. I guess the legal case of my "intention" for
number (3) must then be established beyond the fact that it
really and truly is my intention to be here in Thailand
indefinitely.

- quote -

I've come to see that surrendering my CA license would
actually cause me some technical difficulties. It's not
that I use it to drive in California or use any other
California services, but it's one of my main forms of
identification for online accounts. My online brokerage
won't even let me do an electronic deposit without a state
license. Still, if I really had to cancel the license, I
could most likely work around it.

- quote -

So all the sales I'm currently collecting sales tax on (and
sending to California) would also qualify as California
income for income tax purposes? Doh. I really think it's a
stretch for them to consider my business presense in San
Diego to be worthy of collecting sales tax. I run everything
from Thailand, but I have the check sending customers (about
5% of total customers) send their checks to San Diego for my
parents which my parents just record and cash as it would be
a hassle for the customer to send the check to Thailand.
It's all of 10 minutes a day work for my parents in San
Diego.Even for those customers, all the rest of the business
is taken care of by me and the customer's product is sent
directly from here in Thailand.

- quote -

Now this is interesting and shows me why it really might be
a good idea to stop trying to do all this by myself and seek
a professional. I don't think I would have reasonably come
across this on my own. When I'm in San Diego myself for the
month, I still run my online business, but any inventory
sold is still processed and shipped from Thailand. So
perhaps even this isn't subject to income tax as I would
basically just be soliciting orders for tangible personal
property.

- quote -

After all of the posts on this board I have a stronger sense
of the general framework to work within. I'm still far from
certain of my tax situation, but hopefully the next row of
replies to my responses will clarify things some more.

Thank you,
Daniel

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"A.G. Kalman" <glendale202-mtm[at]yahoo.com> wrote:

- quote -

This safe harbor law sounds great (here's the link:
http://www.ftb.ca.gov/forms/03_forms/03_1031pub.pdf ).
But there are some points I would need clarification on:

1. It says it applies to those away on "employment related
contracts". I don't have a contract per se, I just have my
sole-proprietership business which I run from Thailand. But
isn't the intent of the law to apply to those who are
working out of state for very extended periods like myself?

2. If I can qualify under this, could I apply it to my 2004
taxes? I will hit the 546 day mark sometime around
September 2005, but it's already clear right now that my
work over here will extend to well beyond that time. Can I
just let them know that my plans will be qualifying me for
the Safe Harbor and take the exemption for 2004? If
somebody has a contract good for 547 days abroad, would
California not tax them on the full 547 days or would they
tax them until the point that they hit day 546?

- quote -

I can understand a state's skepticism when it comes to
individuals claiming a new domicile. But if one were to
apply an honest "facts and circumstances" determination to
my domicile I think it would be overwhelmingly clear
Thailand is my domicile and not my parent's home in San
Diego.

Let me just go down the list that you provided:

- quote -

For 2003 and 2004 75% of my time has been in Thailand, and
starting from 2005 more than 90% of my time will be here.

- quote -

None, though my long term girlfriend is Thai and lives here.

- quote -

I rent a condo long term here. The only "residence" I have
in California is the guest room in my parent's home. I do
use my parent's address for mailing purposes and for signing
up for things which need a US address.

- quote -

California. Though I don't have a car and my license sits
packed away in a drawer here most of the time.

- quote -

None.

- quote -

None. Though I have a California seller's permit for my
business due to the slight business location of my parent's
helping with business mail in San Diego.

- quote -

Registered in Berkeley. For better or worse, I haven't
voted since the 2000 presidential primaries. I want to
maintain voter registration somewhere so that I can still
take part in federal elections (federally, I'm still paying
15% self-employment taxes + full taxes on any income I might
earn over $80,000). A presidential absentee ballot should be
arriving here any time now. I thought I remembered reading
something in the absentee ballot information about how
voting in the federal elections could legally have no impact
on deteriminations of state residence.

- quote -

My bank is a national bank, which has branches all over the
place, though the majority of my financial transactions
involve online brokerages, online payment services, etc.
It's not as if I ever take a trip to the local brick and
mortar branch of my bank. I do use my parent's address as
my mailing address for all the financial institutions.

- quote -

I've been getting all medical care in Thailand.

- quote -

Doesn't really apply to me. I have a library card for the
Bangkok American University Alumni Assocation . I've got
club membership benefits at the local grocery store .

- quote -

This one's easy. All my stuff's in Thailand. Including a
nice computer, home-office setup, furniture, business
inventory, etc. I have some old clothes in San Diego.

- quote -

No work assignments in California whatsoever. I run a
successful business out of Thailand and I cannot be absent
from it for extended periods of time.

- quote -

Thailand is my new home and as such this is where my social
ties are. The closest person in my life, my girlfriend, is
here. I have friends in California (and Nevada) but this is
where I'm centered.

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dancalio[at]yahoo.com (Daniel P) wrote in message:

- quote -

You were domiciled in CA when you finished college. In
order to change your domicile, you must meet all of three
requirements: (1) move away from the old domicile (you've
pretty much done that), (2) move to and reside in a new
location (you've done that), and (3) intend to remain in the
new location permanently or indefinitely.

You could argue that you have also met the third
requirement, since you intend to stay in Thailand for a long
or indefinite period of time. If you are no longer
domiciled in California, then under California law you are a
nonresident unless you are present in California for a
purpose that is not temporary or transitory. Your temporary
presence in the state for a month each year would not make
you a resident.

States generally take a dim view of purported changes of
domicile to a foreign country. California would probably
argue that as a U.S. citizen, you intend to return to the
U.S. to live eventually, and until you do that and establish
a new domicile somewhere else (e.g. Nevada, as you suggest),
you have not made an effective change. On the other hand,
even if you are still domiciled in California, you are a
nonresident if you are absent from the state for a purpose
that is not temporary or transitory. Your long-term,
indefinite employment in a business based in Thailand is not
a temporary or transitory purpose. Therefore, I would argue
that you are a nonresident for tax purposes, whether or not
your domicile remains in California.

I would agree with Linda that it would be a good idea to
surrender your CA driver's license and obtain an
international license. You are entitled to be registered to
vote somewhere in the US, though, and there is no problem
with retaining your registration in CA and voting absentee.
Voter registration is an indicator of domicile, but not
determinative by itself.

snip

- quote -

You might be able to argue that your business does not have
a physical presence in California, and therefore you are not
required to hold a CA seller's permit or collect and pay
over sales or use taxes on your sales to California
customers. However, assuming your business does have
sufficient ties to California to require sales and use tax
collection, and you are domiciled in California, you have
California source income to the extent of the net income
from your business activities in the state. You don't say
how your business is organized, so I am assuming it is a
sole proprietorship. You would determine the California
source income from your Schedule C by applying the
three-factor apportionment formula (with double-weighted
sales) provided by Cal. Rev. & Tax. Code Sec. 25120-25139.
It is not a matter of allocating your income by time spent
here vs. Thailand.

Note that if you are not domiciled in California, your
business may be protected from income taxation by Public Law
86-272. If you conduct no business activities in California
other than soliciting orders for tangible personal property,
your business income is not subject to California income
tax. All of the facts and circumstances would have to be
taken into account to determine (a) whether you are still
domiciled in CA and (b) whether your activities in CA are
such that your business is not subject to CA income tax.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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"Daniel P" <dancalio[at]yahoo.com> wrote:

- quote -

Bad News - You are a U. S. citizen and will be considered a
resident of California. California, like most of the states
I've dealt with, consider your state of residence to the be
the last state you lived in and filed a tax return in prior
to moving overseas. Your situation is going to be
compounded by the fact that California does NOT recognize
the Foreign Earned Income Exclusion allowed by the IRS. So
your California taxable income will be more than your
Federal taxable income. Additionally, since you have
already moved to Thailand, California will take a dim view
of any attempt you make to change your state of residence to
someplace more ex-pat friendly, like Nevada, Tennessee,
Florida, Washington, etc.

There are two tests you can use to qualify for the foreign
income exclusion at the Federal level - the Bona Fide
Residence Test OR the Physical Presence Test. If you
qualify under either of these you can reduce your Federal
taxable income and can save a bunch of money in Federal
taxes. However, as I said, California does not allow this
exclusion so you now have to make substantial estimated
payments to California.

Good luck,
Gene E. Utterback, EA

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Daniel P wrote:

- quote -

Re your CA residency assuming that prior to departing the
U.S. for Thailand you were a CA resident:

CA has a safe harbor for those who are CA residents and
leave under employment contracts. If you are out of CA for
546 consecutive days (approx. 18 months) you will be
considered a nonresident unless your annual intangible
income exceeds $200K. You are allowed to visit CA for no
more than 45 days in any taxable year to still meet the safe
harbor. It sounds as though your future plans (one month
per year to visit) would qualify you for the safe harbor.

If you do not meet the safe harbor, then you would fall
under what we all like to call "facts and circumstances."
Assuming CA was where you were domiciled prior to departing
the U.S., you would have to show that CA was no longer your
domicile (the place that is your true, fixed, permanent home
and the place where, whenever you are absent, you intend to
return). In order to show that CA is no longer your domicile
you must show that you have acquired a new domicile as under
the law you can only have one place at one time as your
domicile. Generally, this means that you abandon your CA
domicile, physically move to and live in the new locale and
you intend to remain their permanently or indefinitely. This
test is generally easy to meet when one relocates from CA to
another state. However, when one goes overseas, CA is going
to want proof that you have truly established a new
domicile. (It would have been a lot easier if you upped and
relocated to Nevada before going to Thailand.)

Here is a list from a CA tax pub of the facts and
circumstances that will be considered. It is not all
inclusive!

• Amount of time you spend in California versus amount
of time you spend outside California;
• Location of your spouse and children;
• Location of your principal residence;
• Where your driver 's license was issued;
• Where your vehicles are registered;
• Where you maintain your professional licenses;
• Where you are registered to vote;
• Location of the banks where you maintain accounts;
• Location of your doctors,dentists,accountants,and
attorneys;
• Location of the church,temple or mosque,professional
associations,or social and country clubs of which you
are a member;
• Location of your real property and investments;
• Permanence of your work assignments in California; and
• Location of your social ties.

Remember, you must show that your relocation is not
temporary or transitory such that CA remains your domicile.
Your "plan" to relocate to Nevada upon your return is not
evidence that you have changed your domicile. You would
need to show that Thailand is your new domicile (absent the
safe harbor). I have not personally had dealings with the
CA Franchise Tax Board on this specific issue. However, I
can tell you that based on your comments about your ties to
CA, it appears that you have not changed your domicile.
Look to the safe harbor!

--
Alan
http://taxtopics.net

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You, too! One of my other clients just moved to Thailand a
couple of years ago. He bought a condo and doesn't work.

Have you heard of bona fide residence? This is the other way
of qualifying for Foreign Income Exclusion. You don't have
to stay out of the US for 330 days. Dealing with California
is another story. I counselled a client who moved to Mexico
and works in Europe. He has a Mexican drivers license and
his vehicles are all registered in Mexico. He retains family
conections in CA. His kids go to school here (University).
He also has a CA mailing address just across the border in
San Ysidro for secure mailings. Mail to Mexico takes about
3-4 months and can be stolen.

For you to do the same thing, you would have to give up your
CA voter registration and driver's license. You can get an
international driver's license through the American Embassy
or Consulate in Thailand. Talk to the Consulaar officials
about registering to vote. As a bona fide resident of
Thailand you can visit your parents and other friends as
often as you like. You just can't do any work here unless
you want to risk losing some of your foreign income
exclusion. The lease on your condo qualifies you for bona
fide resident. Now cut those paper ties to Calfornia and
you're set.

The fact that you are no longer living in CA with a student
loan to pay back is irrelevant. Many graduates of California
universities and colleges go to work in other states and
continue to pay back their student loans. You are just
working in another country.

Linda Dorfmont E.A. CFP, CSA

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- quote -

Most states (and I suspect CA is among them) consider that
when you move outside the US, you are nonetheless a resident
of the last state you resided in when you left (even if that
was years ago). Good planning suggests establishing your
residence in a state like Nevada prior to going overseas.
That means actually living there for a while, voting there,
holding your driver's license there, etc.

--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: tom[at]tomhealycpa.com, since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772

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Daniel P wrote:

- quote -

All I have to say is that the question of whether you are a
US resident for US taxes, and whether you are a California
resident for California taxes, are independent questions.
But you are attempting to qualify for the foreign earned
income exclusion on the "physical presence" test, rather
than the "bona vide resident" test, so that may not matter.

- quote -

Well, voting in CA and having a CA drivers license, if
legal, certainly seems as if you are claiming to be a CA
resident. I don't think the CA mailing address or a CA
seller's permit seems significant.

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Hello.

I now live and work in Thailand. I plan on visiting my
parents in California for about 1 month out of the year. I
qualify for the federal foreign income tax exclusion
(330/365 days away, tax home in Thailand, foreign earned
income).

Let me provide some of the relevant information:

-I grew up in California but went abroad soon after
finishing college. In 2003 I was in California for about 3
months and in 2004 I was there for about 3 months as well.
But I should only be there for 1 month per year for the
indefinite future (ensuring my federal foreign tax
exclusion). If/when I come back to live in America I plan on
living in Las Vegas for its lower cost of living, tax
situation, proximity to my family in California and Utah,
etc. It's hard to predict the future, but I foresee living
and working in Thailand for years to come.

-I use my parent's address as my American mailing address, I
receive important financial information there (online
brokerages, Washington Mutual Bank, etc.), and they handle
checks and returns that arrive for my business (but the
sales, 99% of payments, and all communication are completed
online electronically).

-I have a California Driver's license. I'm registered to
vote in California. I could cancel my license and voter
registration without affecting my life much if it's
necessary. I have a California seller's permit for sales tax
collection for my business as they said it's required since
I have somewhat of an office in San Diego (my parents handle
some business mail). Considering that I have such an
insignificant business presence in San Diego I'm not sure
the sales tax collection is necessary but this is a
different question.

-I have a loan for going to UC Berkeley as a California
resident. I don't think this figures in any where but there
might be a problem if I were no longer a resident.

I was reading the California law regarding residence and
they said the main criterion was about where you had the
strongest ties. I think it's clear my strongest ties are
here in Thailand where my entire life is focused -- I live
here for most of the year, I run a successful business from
here, I rent a condo here on a long term basis, my long time
girlfriend is here, I work here, I speak ok Thai, all my
possesions are here.

I'm thinking that I will have to pay tax on any income I
earn while I visit my parent's for the 1 month out of the
year (Christmas season). Is this correct? It would seem
absurd to me to have to continue to pay full California
income tax as I continue to live in Thailand over the coming
years, especially as I don't even plan on returning to live
in California in the future.

If somebody could help me figure out what if anything I have
to pay California for my situation please help.

Thanks,
Daniel

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