Many California residents, tired of the state’s tax and regulatory environment, have taken some “dark, desert highway” eastbound to friendlier states, to echo the lyrics from the 1977 Eagles song, “Hotel California.”
The song’s refrain is particularly apt, too: “You can check out any time you like, but you can never leave.”
To California’s Franchise Tax Board, you can leave — but it might still consider you a resident for tax purposes.
A recent report from the San Francisco Chronicle found that, “People leaving California … may find that some or all of their income could still be taxable in California.”
Other states take similar approaches, but California revenuers are particularly aggressive at chasing down expats.
As Pender added, California failed to impose an exit tax, but instead imposes something similar.
It taxes athletes based on the number of games played in California. It embraces a broad definition of the word “domiciled,” meaning that if you take up residence elsewhere it still might consider you a Californian if you maintain close connections within the state.
California will still tax you for, as the article noted, rental income or a business with sales in the state, income from California-based retirement plans, freelance income from California clients and other income sources.
The agency often audits “high-income people who have recently established residency in another state.”
In one notorious case, California spent 26 years trying to collect millions of dollars “from a wealthy computer chip inventor … after state tax collectors accused him of fabricating a move to Nevada just as he started to cash in on a lucrative patent he obtained in 1990,” according to the Las Vegas Sun.
The inventor largely won his case in 2017, but it shows just how zealous California can be at chasing taxes.
Instead of targeting fleeing Californians, the Legislature and governor should create a tax structure and climate that encourages people to invest, work, build businesses and create revenue here.
“Hotel California” was an allegory of greed — something that’s especially fitting given the endless greed of the state’s tax agencies.
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