Even if you have multiple residencies, you can only have one domicile. California courts have been clear in establishing that “where a person maintains two residences, determination of the issue of domicile depends to a great extent upon the person’s intention as manifested by his acts and declarations on the subject. (See Chambers v. Hathaway (1921) 187 Cal. 104, 105).
When looking to change domiciles, ask yourself these questions:
- What steps did you take to change domiciles,
- What was the intent of your actions, and
- What supports that intent?
Also keep in mind the concept that we talked about earlier: the state is trying to determine from a resident's perspective, which state you have the more permanent connection with.
From an operational perspective, the more you can show that would demonstrate you moved from one place to the other, the better off you're going to be dealing with a challenge from the state.
When you're severing the connection to your prior state, there's a couple of important things to be aware of. The first one is that even if you make a connection with a new location, if you don't abandon your old one, the state is going to presume that you are still domiciled in the first one.
Until you actually make the move and transition to the new location, your present domicile remains. Keeping your old place defeats the purpose of having a new domicile.
If you were changing states, you would likely get rid of your old home and move into the new one. People who choose to keep their old place of residence would seemingly defeat the purpose.
Today, however, people retain their original homes all the time for a variety of reasons.
For example, we had a situation involving a client who was changing jobs. He intended to make a very big and permanent move to another state, far from California. He bought a house in his new state, and he moved his family there.
Due to the local California real estate market at the time, he elected not to sell his house (his former primary residence). Instead, he decided to use it as a rental property.
One of the issues that we had in that particular situation was because he didn't do anything with the property, the state challenged his change in domicile. The state looked at his ownership of that property since he did nothing to change it, not his intention to sell when the real estate market rebounded.
It tried to use this as evidence that the purchase of his new domicile wasn't a bona fide acquisition.
Focusing on the taxpayer’s intent is crucial. Holding on to their old residence and looking at what they are doing should establish an intention to return to that new residence or not.
From an operational perspective, your first domicile is going to be controlling. The presumption always lies with the first domicile until there is a clear switch.
When the taxpayer has two dwellings, and there are factors both for and against residency, then the state will presume that the first one is the established domicile.
What the state is looking for in any sort of residency audit is a clear intention to switch. If there is not a clear intention to switch, and you've got factors on both sides in the equation, then the domicile will be the first one. It will remain so until there is a clear and causal link between them.
California courts discussed the importance of intent in Noble v. Franchise Tax Bd.,118 Cal. App. 4th 560 (2004).
As the court stated in Noble, “That one may intend to move from California at some time in the future does not make that person someone who is in California for a temporary or transitory purpose. If it did, every person who contemplates plans for a future move would not be taxable as a resident.”
The burden of proof in these cases, as in most tax cases, is always going to be on the taxpayer. The person asserting that there is a change in domicile must prove the acquisition of that domicile in a new place is intended to be their new domicile.
Knowing the burden is on the taxpayer is important because it places the responsibility – either before switching locations or after – to establish that a change has been made.
Similar to other domicile and residency determinations, this is a question of facts.
There are some guideposts in the law for what the court is looking for, but they are very fluid determinations. That’s because they concern very fluid situations.
What the state is looking for is whether you are benefiting from it as a person with a domicile normally would. They're looking for how much benefit somebody derives from one thing or another. This depends on the lens on how the benefit is viewed. It's a difficult concept to nail down. As a result, it makes it a frequently contested issue.