California residence question (am I qualified for safe harbor)

Jun 08, 2007 2 Replies
J

California R&T Code Sec 17014 states: "For any taxable year beginning on or after January 1, 1994, any individual domiciled in this state who is absent from the state for an uninterrupted period of at least 546 consecutive days under an employment-related contract shall be considered outside this state for other than a temporary or transitory purpose." Here's my situation: I accepted an job at Beijing, China and have signed a two-year contract with the company. The contract starts from Aug. 15, 2006 and ends on Aug. 14, 2008. I still have my house there, have a valid driver license, etc. I am wondering for filing 2006 CA tax return, can I claim that I am a non-CA resident because of this safe harbor rule? And how about 2007 tax return? Do I have to wait until I have lived in Beijing for 546 days before I can start claiming that I am a non- resident? Or the non-resident status starts at the time the contract starts as long as the contract is more than 546 days? The other questions is that the publication also says that "Return visits to California that do not exceed a total of



45 days during any taxable year covered by the employment contract are considered temporary." In my case, I lived and worked in CA until Aug. 14, 2006, am I considered exceeding the 45 days limit of return visit? Thanks in advance!



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S

If all indications are that you'll be away the entire 2 years, you CA filing status will likely be as follows based on the above: You'll be a part-year resident for 2006, non-resident for

2007 (unless you exceed the allowable number of days in the state or perform and work for compensation while you're here), and a part-year resident again in 2008 when you return.
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K

You should file your 2006 return as a part-year resident. You will be a nonresident for 2007 and a part-year resident for 2008, assuming your overseas assignment ends as scheduled and you otherwise meet the requirements of the safe harbor. The 45-day test refers to time AFTER the taxpayer has left the country to fulfill the contract. You do not need to have been absent for 546 days in order to claim nonresidence under the safe harbor. If you meet its terms, you are a nonresident from the time you left the state to assume your duties in the foreign country. Just be aware that if unforeseen circumstances were to arise and you were to return to California before the end of the

546-day period, you would have been a California resident during your entire absence and would owe additional taxes. If you had severed your ties with California when you left (sold your house, moved away), you could argue under the general rule that your absence was not for a temporary or transitory purpose. Since you appear not to have severed your ties with California, you will be a resident for the entire period of absence if you return to stay before the terms of the safe harbor are met. Katie in San Diego
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