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State of California — Franchise Tax Board FTB Pub.

1031
Guidelines for Determining Resident Status — 1997
A Introduction The spouse of the individual covered by this • Where you are registered to vote;
safe harbor rule will also be considered a • Location of the banks where you maintain
It is important for California income tax nonresident while accompanying the individual accounts;
purposes that you make an accurate outside California for at least 546 consecutive • Location of your doctors, dentists, accoun-
determination of your residency status. Resi- days. tants and attorneys;
dency is primarily a question of fact to be Return visits to California that in the aggre- • Location of the church, temple or mosque,
determined by examining all the circum- gate do not exceed 45 days during any taxa- professional associations or social and
stances of your particular situation. This ble year covered by the employment contract country clubs of which you are a member;
publication provides information that will help are considered temporary. • Location of your real property and
you determine: investments;
• Whether you are a resident of California;
Individuals not covered by this safe harbor • Permanence of your work assignments in
must determine their residency status based
• Whether your income is taxable by California; and
California; and
on their facts and circumstances. The determi- • Location of your social ties.
nation of residency status cannot be solely
• What form to file if you have a California based on an individual’s occupation, business Caution: This is only a partial list of the fac-
filing requirement. or vocation. Instead, all activities must be con- tors to consider. You must consider all the
Note: The Franchise Tax Board issues written sidered in the determination of residency sta- facts of your particular situation to determine
advice on whether a particular activity or tus. For instance, students who are residents your residency status.
transaction is subject to tax under the income of California leaving this state to attend an
tax laws of California. Because residency is a out-of-state school do not automatically E Temporary or Transitory
question of fact, not law, the Franchise Tax become nonresidents, nor do students who Purposes
Board will not issue a written opinion on are nonresidents of California coming to this
whether you are a California resident for a state to attend a California school automati- Generally, your state of residence is where
particular period of time. The information cally become residents. In these situations, you have your closest connections. If you
included in this publication is provided to help individuals must determine their residency sta- leave your state of residence, it is important to
you with this determination. tus based on their facts and circumstances determine if your presence in a different loca-
In addition to this publication, military person- (as described in Section D and Section E). tion is for a temporary or transitory purpose.
nel should use FTB Pub. 1032, Tax Informa- You should consider the purpose and length
tion for Military Personnel. C Significance of Residency of your stay when determining your residency.

Residency is significant because:


Coming into California
B Who Are Residents and When you are in California for temporary or
• Residents of California are taxed on ALL transitory purposes, you are a nonresident of
Nonresidents income, including income from sources California. For instance, if you come to Cali-
A ‘‘resident’’ is any individual who is: outside California; fornia for a vacation, or to complete a transac-
• Nonresidents are taxed only on income
• In California for other than a temporary or from California sources; and
tion or are simply passing through, your
purpose is temporary or transitory. As a non-
transitory purpose; or • Part-year residents are taxed on all income
• Domiciled in California, but outside while a resident, and only on income from
resident, you are taxed only on your income
California for a temporary or transitory from California sources.
California sources while a nonresident.
purpose. When you are in California for other than a
temporary or transitory purpose, you are a
A resident who is outside California for a D Guidelines for Determining California resident. For instance, if your
temporary or transitory purpose remains
a resident.
Residency employer assigns you to an office in California
for a long or indefinite period, if you retire and
A ‘‘nonresident’’ is any individual who is not The underlying theory of residency is that you come to California with no specific plans to
a resident. are a resident of the place where you have leave, or if you are ill and are in California for
A ‘‘part-year resident’’ is any individual who the closest connections. an indefinite recuperation period, your stay is
is a California resident for part of the year and The following list shows some of the factors other than temporary or transitory. As a resi-
a nonresident for part of the year. you can use to help determine your residency dent, you are taxed on income from all
Note: For taxable years beginning on or after status. Since your residence is usually the sources.
January 1, 1994, a ‘‘safe harbor’’ is available place where you have the closest ties, you Note: You will be presumed to be a
for certain individuals leaving California under should compare your ties to California with California resident for any tax year in
employment-related contracts. The safe har- your ties elsewhere. In using these factors, it which you spend more than nine months
bor provides that an individual domiciled in is the strength of your ties, not just the num- in this state.
California who is outside California under an ber of ties, that determines your residency.
Although you may have connections with
employment-related contract for at least 546 Factors to consider: another state, if your stay in California is for
consecutive days will be considered a nonres- • Amount of time you spend in California other than a temporary or transitory purpose,
ident unless: versus amount of time you spend outside you are a California resident. As a resident,
• The individual has intangible income California; your income from all sources is taxable by
exceeding $200,000 in any taxable year • Location of your spouse and children; California.
during which the employment-related • Location of your principal residence; Example 1 – You are a business executive
contract is in effect; or • Where your driver’s license was issued; and reside in New York with your family. Sev-
• The principal purpose of the absence from • Where your vehicles are registered; eral times each year you travel to other states
California is to avoid personal income tax. • Where you maintain your professional for business purposes. Your average stay is
licenses; one or two weeks and the entire time spent in

FTB Pub. 1031 1997 Page 1


California for any taxable year does not children will remain in California residing in When you complete Form 540NR, California
exceed six weeks. Your family usually the home you own. Nonresident or Part-Year Resident Income
remains in New York when you are traveling Determination: You maintain strong ties with Tax Return, you must compute your taxable
for business purposes. California because your spouse and children income as if you were a California resident for
Determination: Under these circumstances, remain in your California home during your the entire year. This is done by completing
you are not a California resident because your absence. Your intent is to return to California, Schedule CA (540NR), California Adjustments
stays in California are temporary or transitory and your absence is temporary and transitory. — Nonresidents or Part-Year Residents, col-
in nature. As a nonresident, you are taxed You remain a California resident during your umn A through column D, to determine total
only on your income from California sources, absence. You are taxed on income from all adjusted gross income (AGI). California AGI
including your income for services performed sources, including income earned in South applicable to a nonresident or part-year resi-
in California. America. dent is computed on Schedule CA (540NR),
column E. The ratio of California AGI to total
Example 2 – In December 1995, you came to Example 5 – You receive and accept a per- AGI is used to determine your California tax
California on an indefinite job assignment. manent job offer in Spain. You and your liability.
You rented an apartment upon entering Cali- spouse sell your home in California, pack all
fornia and continued to live in the apartment. of your possessions and move to Spain on You should treat specific types of income as
You retained your home and bank account in May 5th with your children. You lease an explained below.
Illinois until April 1997, at which time you sold apartment and enroll your children in school. Wages and Salaries
your home and transferred your bank account You obtain a Spanish driver’s license and Wages and salaries have a source where the
to California. make numerous social connections in your services are performed. Neither the location of
Determination: Your assignment in California new home. You have no intention of returning the employer, where the payment is issued,
was for an indefinite period; therefore, your to California. nor your location when you receive payment
stay in California was not of a temporary or Determination: You are a part-year resident. affect the source of this income. A resident
transitory nature. Although you kept ties in Illi- Until May 5th, you were a California resident. must include all wages and salaries earned,
nois until April 1997, you became a California On May 5th, you became a nonresident. All regardless of where the services were per-
resident upon entering the state in December your income while you were a resident is tax- formed. A nonresident must include the
1995. As a resident, you are taxed on your able by California. While you are a nonresi- income for services performed in California on
income from all sources. dent, only income from California sources is Schedule CA (540NR), column E.
Leaving California taxable by California. Example 1 – You are a resident of New York
Any individual who is a resident of California Example 6 – You are a resident of California. working temporarily in California for a New
continues to be a resident when absent from You accept a fifteen-month assignment in York corporation.
the state for a temporary or transitory Saudi Arabia. You put your personal belong- Determination: Your income earned for serv-
purpose. ings, including your automobile, in storage in ices performed in California has a California
California. You have a California driver’s source. As a nonresident, you must include
For taxable years beginning on or after
license and are registered to vote in Califor- this California source income on Schedule CA
January 1, 1994, an absence from California
nia. You maintain bank accounts in California. (540NR), column E.
under an employment-related contract for a
In Saudi Arabia, you stay in a compound pro-
period of at least 546 consecutive days may Example 2 – You are a California resident.
vided for you by your employer, and the only
be considered an absence for other than a As a representative for your employer, you
ties you establish there are connected to your
temporary or transitory purpose. See note spent two weeks in Georgia to give training.
employment. Upon completion of your assign-
under Section B. You were paid by a Georgia corporation while
ment, you will return to California.
Example 3 – Until September 1996, you were you were in Georgia.
Determination: You have maintained greater
a resident of California. At that time, you Determination: Because you are a California
connections with California than you have
declared yourself to be a resident of Nevada, resident, you are taxed on all income, regard-
established in Saudi Arabia. Your absence is
where you have a summer home. You con- less of source. The income is taxable by
for a temporary or transitory purpose. There-
tinue to spend six or seven months each year California, even though it has a source in
fore, you remain a California resident. As a
at your home in California, which you have Georgia.
California resident, your income from all
retained. You spend only three to four months Interest and Dividends
sources is taxable by California, including the
in Nevada and the rest of the time traveling
income that you earned from your assignment Interest and dividends generally have a
in other states or countries. You transferred
in Saudi Arabia. source where you are a resident. See the
your bank accounts to Nevada. However, you
exception on page 3.
continue to maintain your social club and
business connections in California. F Income Taxable by California Example 3 – You are a resident of Texas and
have interest from a California bank account.
Determination: Your declaration of residency Residents of California are taxed on ALL
in another state does not establish residency income, including income from sources out- Determination: Because you are a resident
in that state. Your closest connections are to side California. of Texas, the interest has a source in Texas.
California and your presence in California is The interest is not taxable by California.
Nonresidents of California are taxed only on
for other than temporary or transitory pur- income from California sources. Example 4 – You are a resident of California
poses. You are, therefore, a resident of and have interest from a savings account in
California and are taxed on your income from Note: Nonresidents of California are not taxed
Oregon.
all sources. on pensions received after December 31,
1995. Get FTB Pub. 1005, Pension and Determination: Because you are a California
Example 4 – You and your spouse are Cali- Annuity Guidelines, for more information. resident, you are taxed on all income, regard-
fornia residents. You accept a contract to less of source. The interest is taxable by
work in South America for sixteen months. Part-year residents of California are taxed on
California.
You lease an apartment near the job site. all income received while a resident and only
on income from California sources while a Example 5 – You are a resident of Montana
Your contract states that your employer will and have dividends from a California
arrange your return back to California when nonresident.
corporation.
your contract expires. Your spouse and your

Page 2 FTB Pub. 1031 1997


Determination: Because you are a Montana after December 31, 1995, continue to be taxa- Example 11 – You are a resident of
resident, the dividends have a source in ble by California. Get FTB Pub. 1005 for more California. You sold real estate located in
Montana. The dividends are not taxable by information. England at a gain.
California. A lump-sum distribution received when you Determination: Because you are a California
Exception: Interest and dividends have a are a California resident is taxable by Califor- resident, you are taxed on all income, regard-
source in California if the account or security nia. Residents of California are taxed on all less of source. The gain on the sale is taxable
is used in a trade or business or pledged as income, regardless of source. Therefore, the by California.
security for a loan, the proceeds of which are distribution is taxable even if it is attributable Example 12 – You are a resident of Nevada.
used in a trade or business in California. For to services performed outside of California You own residential rental property located in
special rules regarding qualifying investment and accrued prior to your becoming a California. Your property has always shown a
securities, refer to Revenue and Taxation California resident. loss. As a result, you have never filed a Cali-
Code (R&TC) Section 17955. Example 8 – You lived and worked in New fornia return. You sold the property for a gain.
Business Income (or Loss) York. You retired and moved to California and Determination: Because the property is
A nonresident’s income from California became a resident. Prior to relocating, you located in California, the gain on the sale is
sources includes income from a business, elected to receive a lump-sum distribution taxable by California.
trade or profession carried on in California. If from your qualified pension plan. You
received the distribution after you became a Since rental real property is classified as a
the nonresident’s business, trade or profes- passive activity, the sale ‘‘triggers’’ the release
sion is carried on both within and outside California resident.
of suspended losses incurred in income years
California and the part outside California is Determination: The distribution is taxable by after January 1, 1987. The suspended losses
separate and distinct from the part within Cali- California because California residents are may be used to offset any gain from the sale
fornia, only income from the part conducted taxed on all income, regardless of source or income from other passive activities. Get
within California is California source income. (Appeal of Ralph G. and Martha E. McQuoid, Form FTB 3801, Passive Activity Loss Limita-
If, however, there is any business relationship California State Board of Equalization, May tions, and instructions for more information.
between the parts within and outside Califor- 11, 1989).
nia (flow of goods, etc.), the portion of income Note: The basis of the property must be
Example 9 – You were a California resident reduced by the amount of depreciation that
(or loss) taxable by California is normally and worked for a corporation in California.
determined by using the apportionment for- would have been allowed had you filed Cali-
You moved to Ohio during 1997 and elected fornia returns (Appeal of Charles E. Kuhn,
mula for corporations engaged in multistate to take a lump-sum distribution from your
businesses. Refer to Title 18, Cal. Code California State Board of Equalization,
qualified pension plan. You received the distri- November 21, 1991).
Regs. Section 17951-4 and Schedule R, bution after you became a resident of Ohio.
Apportionment and Allocation of Income, for Partnership Income (or Loss)
more information. Determination: Since you are a nonresident,
A partner’s share of partnership income (or
the distribution is not taxable by California
Pensions and Keoghs (HR 10) loss) accrues at the end of the partnership’s
because you received it after December 31,
Distributions received by California residents taxable year.
1995.
from employer sponsored and self- If a partner is a resident of California on the
employment (Keogh) pension, profit sharing, Individual Retirement Account last day of the partnership’s taxable year, the
stock bonus plans or other deferred compen- (IRA), Simplified Employee entire share of partnership income is taxable
sation arrangements are taxable by California Pension (SEP) and Keogh by California regardless of where the partner-
regardless of where the services were Distributions ship property is located or where the partner-
performed. IRA, SEP and Keogh distributions received ship’s business is conducted.
Such distributions received by a nonresident after becoming a nonresident are not taxable If a partner is a nonresident of California on
are not taxable by California if received after by California if received after December 31, the last day of the partnership’s taxable year,
December 31, 1995. Get FTB Pub. 1005 for 1995. the partner’s distributive share of the net
more information. Distributions from a SEP from contributions income (or loss) from a partnership conduct-
Example 6 – You were a resident of made after 1986 are taxed by California in the ing business outside California is not included
California when you earned your pension. You same manner as pension and Keogh distribu- in California source income on Schedule CA
retired during 1997 and moved permanently to tions. Distributions from contributions made (540NR), column E. If a portion of the partner-
New Mexico. After becoming a resident of before 1987 are taxed by California in the ship income is derived from California
New Mexico, you begin drawing your pension. same manner as IRA distributions. Get FTB sources, that portion of the income is taxable
Pub. 1005 for more information. by California and must be included on Sched-
Determination: Since you are a nonresident, ule CA (540NR), column E. Refer to Title 18,
the distribution is not taxable by California Sale of Real Estate Cal. Code Regs. Section 17951-4.
because you received it after December 31, The gain or loss from the sale of real estate
1995. has a source where the property is located. If Example 13 – You are a resident of Maine
you sell your California residence, move out of and are a partner in a Maine partnership that
Example 7 – You lived and worked in Ohio. owns real estate in California. The partnership
You retired and moved permanently to Califor- state and do not replace that residence, the
gain is taxable by California. The gain is taxa- sells the California real estate at a gain.
nia. After becoming a resident of California
you begin receiving your pension. ble by California even if the residence is sold Determination: Because the real estate was
when you are a nonresident. located in California, the gain has a California
Determination: Your pension is taxable by source. As a nonresident, you must include
California because California residents are Example 10 – You are a resident of Idaho.
You sold undeveloped real estate located in your portion of the gain on Schedule CA
taxed on all income, regardless of source. (540NR), column E.
California at a gain.
Lump-Sum Distributions Example 14 – You were a resident of Kansas
Determination: Because the property is in
Lump-sum distributions received from a quali- from January 1 to June 30. On July 1 you
California, the gain is California source
fied plan or annuity by nonresidents after became a California resident. You are a part-
income. As a nonresident, you must include
December 31, 1995, are not taxable by ner in a Kansas partnership with a taxable
this California source income on Schedule CA
California. Lump-sum distributions received
(540NR), column E.
from most nonqualified plans by nonresidents

FTB Pub. 1031 1997 Page 3


year ending December 31. The partnership regardless of your residency at the time the earned while at sea (Appeal of James H. and
does business solely in Kansas. reimbursement is made. Leila P. Pike, California State Board of Equal-
Determination: Because the partnership ization, February 1, 1983).
income accrues at the end of the partner- G Specific Professions Example 2 – You are a merchant seaman
ship’s taxable year, your share of this income and spend eight to ten months a year aboard
accrued to you on December 31. On Decem- Airline Employees a ship outside California. You are single and
ber 31, you were a California resident. A The wages of nonresident flight personnel have no dependents. You spend 50% of your
California resident is taxed on all income (e.g., pilot, flight attendant) are not taxable by off-duty time or 10% of your total time in Cali-
regardless of source. Therefore, all your California unless more than 50% of the indi- fornia. You return to California only when your
Kansas partnership income is taxable by vidual’s scheduled flight time is in or over employment brings you here. When visiting
California. Do not prorate the Kansas California. If more than 50% of the scheduled California, you stay in hotels. You have a
partnership income for the period you were a flight time is in or over California, wages are California bank account in joint tenancy with
nonresident. apportioned to California in the ratio of time your father. You have a California driver’s
spent in or over California to the total sched- license, but no car. You own no real property
Withholding of Tax at Source – uled flight time. in California.
Nonresidents Flight personnel who are California residents
Withholding may be required on sales of Cali- Determination: You are a nonresident of
are taxed on all wages received regardless of California. Your ties to California are not sub-
fornia real estate, income allocations or distri- where the flight time is spent.
butions from partnerships and other payments stantial and your time in California is tempo-
of California source income paid to nonresi- Interstate Rail and Motor Carrier rary or transitory (Appeal of Richard W. Vohs,
dents. For more information, contact: Employees California State Board of Equalization, Sep-
Income earned in the performance of regularly tember 17, 1973).
WITHHOLD-AT-SOURCE UNIT
FRANCHISE TAX BOARD assigned duties in more than one state is
PO BOX 651 deemed to be sourced in the state of H Residents of or Individuals in
SACRAMENTO CA 95812-0651 residence. Foreign Countries
Telephone . . . . . . . . (916) 845-4900 Career Appointees in the U.S. If you are a resident of a foreign country and
FAX . . . . . . . . . . . . (916) 845-4831 Foreign Service perform services in California and/or receive
Sale of Stocks and Bonds Individuals who are career appointees in the income from California sources, you may have
U.S. Foreign Service and who are domiciled a California income tax filing requirement even
The gain or loss from the sale of stocks or
in California are considered to be nonresi- if you have no federal filing requirement.
bonds has a source where you are a resident
dents when assigned to a post of duty outside
at the time of the sale. If buying and selling A tax treaty between the United States and
California.
stocks and bonds is your trade or business, another country may not affect the taxation of
see ‘‘Business Income (or Loss)’’ on page 3 Military California income.
for more information. Military personnel should get FTB Pub. 1032, A federal income tax clearance does not
Example 15 – You are a resident of Oregon Tax Information for Military Personnel, for spe- affect your California tax liability. The
and sell stock of a California corporation at a cific guidelines on the taxability of military Franchise Tax Board does not issue tax
gain. income. clearance certificates for individuals in this
Determination: Because you are an Oregon Civilians Working for the situation.
resident, the gain has an Oregon source. The Military California does not allow a foreign tax credit
gain is not taxable by California. The rules for military personnel do not apply or a foreign earned income exclusion. If you
Example 16 – You are a resident of California to civilians working for the military. You must claimed the foreign earned income exclusion
and sell stock of a Kansas corporation at a determine your residency status and the on your federal return, you must make an
gain. source of your income based on the guide- adjustment on Schedule CA (540NR) to
lines previously explained. increase your federal adjusted gross income
Determination: Because you are a California
by the amount of the foreign income
resident, you are taxed on all income, regard- Merchant Seamen
excluded.
less of source. The gain is taxable by A merchant seaman who is in California only
California. because this state is a port-of-call and who
maintains no other contact or connections I Married Filing Separate Returns
Installment Sales
with this state, is a nonresident. However, a Division of Income
Installment payments received by a nonresi-
seaman who maintains close connections with
dent on the sale of California property are The domicile of the spouse earning the
California remains a California resident while
taxable by California. However, the interest income determines the division of income
at sea. Under such circumstances, the sea-
earned by a nonresident on the installment between spouses when separate returns are
man’s absence is for a temporary or transitory
note is not taxable by California. filed. Each spouse must follow the laws in his
purpose.
Installment payments received by a California or her state of domicile to determine whether
Example 1 – You are a merchant seaman income is separate or community. When sep-
resident due to a sale of out-of-state property
and spend six to ten months a year aboard a arate returns are filed, you and your spouse
are taxable by California. However, if the out-
ship outside California. You spend your time must each report half of the community
of-state sale was made before you became a
off in California. You own a home in California income plus all of your separate income on
California resident, the gain is not taxable by
where your spouse resides. You vote and your return. California is a community property
California. The interest earned on the install-
bank in California. You have a California state.
ment note while you are a California resident
driver’s license and your automobile is regis-
is taxable by California.
tered in California. Meaning of Domicile
Reimbursement of Moving The term ‘‘domicile’’ has a special legal defini-
Determination: You are a resident of tion that is not the same as residence. While
Expenses California. Your time at sea is temporary and many states consider domicile and residence
The source of reimbursement of moving transitory. As a resident, all your income is to be the same, California makes a distinction
expenses is the state to which you move, taxable by California, including your income and views them as two separate concepts,

Page 4 FTB Pub. 1031 1997


even though they may often overlap. For Separate property must be maintained sepa- Example 2 – You and your spouse are resi-
instance, you may be domiciled in California rately. If the property or the income from the dents of California. For the first six months of
but not be a California resident or you may be property is used for community purposes, or the year you earned wages of $30,000. Your
domiciled in another state but be a California commingled, it could lose its separate prop- spouse did not earn any income. On June 30,
resident for income tax purposes. erty character, overriding any agreements. you and your spouse physically separated
Domicile is defined for tax purposes as the Separate Income with no intention of reconciliation. During the
place where you voluntarily establish yourself last six months, you earned wages of $30,000
Generally, income from separate property is
and family, not merely for a special or limited and your spouse earned wages of $10,000.
income of the spouse who owns the property.
purpose, but with a present intention of mak- You have decided to file separate returns.
When separate returns are filed, you and your
ing it your true, fixed, permanent home and spouse must each report your separate Determination: For the first six months of the
principal establishment. It is the place where, income on your separate return. year, your earnings were community income.
whenever you are absent, you intend to You and your spouse must each report on
return. Deductions your individual returns one half of the income
Expenses incurred to earn or produce com- earned during this period. When you and your
Change of Domicile munity business or investment income are spouse physically separated with no intention
You can have only one domicile at a time. generally divided equally between you and of reconciliation, your community income sta-
Once you acquire a domicile, you retain that your spouse. Each spouse is entitled to tus ended. Therefore, from July 1 through
domicile until you acquire another. deduct half of the expenses of the business or December 31, the income earned by you and
A change of domicile requires: investment expenses on his or her separate your spouse was separate income.
• Abandonment of your prior domicile; return.
You Your
• Physically moving to and residing in the Expenses incurred to earn or produce sepa- Spouse
new locality; and rate business or investment income are Community
• Intent to remain in the new locality perma- deductible by the spouse who owns the Jan.–June $15,000 $15,000
nently or indefinitely. investment generating the income, provided Separate
that spouse pays the expenses from his or July–Dec. 30,000 10,000
Community Property her separate funds.
Community property is all of the property that Total $45,000 $25,000
is not separate property acquired by a hus- Expenses that are not attributable to any spe-
band or wife or both while domiciled in a cific income, such as medical expenses, are For additional information on how to split
community property state. deductible by the spouse who pays them. If income on Form 540NR, see Example 3 on
these expenses are paid from community the next page and the chart on page 7.
Each spouse owns one-half of all community funds, the deduction is divided equally
property. If property cannot be specifically between you and your spouse.
identified as separate property, it is consid-
ered community property. Note: If one spouse itemizes deductions, both
spouses must itemize deductions, even if the
The following are community property states: itemized deductions of one spouse are less
Arizona; than the standard deduction.
California;
Idaho; Exemption Credits
Louisiana; When you file separate returns, you and your
Nevada; spouse must each claim your own personal
New Mexico; exemption credit.
Texas; When you have more than one dependent
Washington; and supported by community funds, you and your
Wisconsin spouse may divide the number of dependents
Community Income between you in any manner you choose.
Income generated from community property is However, you may not split the credit for any
community income. Community income also one dependent.
includes compensation for services if the Division of Income, Residents of
spouse earning the compensation is domiciled California – Examples
in a community property state. Example 1 – You and your spouse are resi-
Community income must be divided equally dents of California. You earned $15,000 in
between you and your spouse when separate wages. Your spouse earned $30,000. In addi-
returns are filed. tion to wages, you have stock that you inher-
Separate Property ited. The stock is in your name only, and you
keep the stock and the dividend income sepa-
Separate property is:
rate from community funds. You received
• Property owned separately by the husband $5,000 in dividends. You have decided to file
or wife before marriage; separate returns.
• Property received separately as gifts or Determination: You and your spouse each
inheritances;
• Property purchased with separate property have $22,500 in community income: ($15,000
+ $30,000 = $45,000 ÷ 2). In addition to your
funds;
• Money earned while domiciled in a $22,500 in community income to be reported,
you must include the $5,000 of separate
separate property state; and
• All property declared separate property in income from dividends, making your total
income $27,500.
a valid agreement.

FTB Pub. 1031 1997 Page 5


Example 3:
Bill and Betty are full-year nonresidents of California. Betty earned $30,000 in wages for services performed in her state of resi-
dence. Betty also sold property in California that was her separate property. She had a $100,000** gain. Bill received a pension
distribution of $10,000 in 1997 based on services performed in California. Bill’s taxable pension distribution for the year is 0*. Bill has
a rental house in California that is his separate property. His net rental income was $1,000.** Bill and Betty filed separate federal
returns, therefore, they must file separate California returns. The following situations show how their income should be divided based
on domicile.

1. Bill and Betty are both Bill Betty


domiciled in community
property states. Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR),
column D column E column D column E
TOTAL
WAGES $ 30,000 $ 15,000 $ 0 $ 15,000 $ 0
GAIN 100,000 0 0 100,000 100,000
PENSION 10,000 5,000 0 5,000 0
RENTAL INCOME 1,000 1,000 1,000 0 0

Bill would complete his Schedule CA (540NR) as shown in the partial view that follows.
Part II Income Adjustment Schedule A B C D E
Federal Amounts Subtractions Additions Total Amounts CA Amounts
Section A — Income
(taxable amounts See instructions See instructions Using CA Law (income earned or
from your federal (subtract column B received as a CA
return) from column A; add resident and income
column C to the earned or received
result) from CA sources as
a nonresident)
7 Wages, salaries, tips, etc. See instructions
before making an entry in column B or C 7 $15,000 $15,000

16 Pensions and annuities. See instructions.


(a) $10,000 . . . . . . (b) 5,000 5,000
17 Rental real estate, royalties, partnerships,
S corporations, trusts, etc. . . . . . . 17 1,000 1,000 1,000

2. Bill and Betty are Bill Betty


domiciled in separate
property states. Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR),
column D column E column D column E
TOTAL
WAGES $ 30,000 $ 0 $ 0 $ 30,000 $ 0
GAIN 100,000 0 0 100,000 100,000
PENSION 10,000 10,000 0 0 0
RENTAL INCOME 1,000 1,000 1,000 0 0
3. Bill is domiciled in a Bill Betty
community property state
and Betty in a separate Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR),
property state. column D column E column D column E
TOTAL
WAGES $ 30,000 $ 0 $ 0 $ 30,000 $ 0
GAIN 100,000 0 0 100,000 100,000
PENSION 10,000 5,000 0 5,000 0
RENTAL INCOME 1,000 1,000 1,000 0 0
4. Bill is domiciled in a Bill Betty
separate property state
and Betty in a community Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR),
property state. column D column E column D column E
TOTAL
WAGES $ 30,000 $15,000 $ 0 $ 15,000 $ 0
GAIN 100,000 0 0 100,000 100,000
PENSION 10,000 10,000 0 0 0
RENTAL INCOME 1,000 1,000 1,000 0 0

*Nonresidents are not taxed on pension income received after December 31, 1995.
**This income is from separate property; therefore, it is not divided even when domiciled in a community property state.

Page 6 FTB Pub. 1031 1997


How To Split Income on Form 540NR
Use this chart as a guide to split community income with your spouse based on domicile if you are married and file Form 540NR,
California Nonresident or Part-Year Resident Income Tax Return.

REMINDER: You must include all of your separate income in addition to your half of the community income when filing. See page 5.

Form 540NR, Form 540NR, Form 540NR,


TYPE HUSBAND’S WIFE’S Married Filing Joint Married Filing Separate Married Filing Separate
DOMICILE DOMICILE (husband’s) (wife’s)

Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR),


column A through column D: column A through column D: column A through column D:
All income Half of all income Half of all income
Community Community All deductions Half of all deductions Half of all deductions

1 Property
State
Property
State Schedule CA (540NR),
column E:
All income taxable
Schedule CA (540NR),
column E:
Half of all income
Schedule CA (540NR),
column E:
Half of all income
by California taxable by California taxable by California

Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR),


column A through column D: column A through column D: column A through column D:
All income All husband’s income All wife’s income
Separate Separate All deductions All husband’s deductions All wife’s deductions

2 Property
State
Property
State Schedule CA (540NR),
column E:
All income taxable
Schedule CA (540NR),
column E:
All husband’s income
Schedule CA (540NR),
column E:
All wife’s income
by California taxable by California taxable by California

Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR),


column A through column D: column A through column D: column A through column D:
All income Half of husband’s income All wife’s income plus
All deductions Half of husband’s deductions half of husband’s income
All wife’s deductions plus
Community Separate

3 Property
State
Property
State Schedule CA (540NR),
column E:
Schedule CA (540NR),
column E:
half of husband’s deductions
Schedule CA (540NR),
column E:
All income taxable Half of husband’s income All wife’s income taxable
by California taxable by California by California plus half of
husband’s income
taxable by California

Schedule CA (540NR), Schedule CA (540NR), Schedule CA (540NR),


column A through column D: column A through column D: column A through column D:
All income All husband’s income Half of wife’s income
All deductions plus half of wife’s income Half of wife’s deductions
All husband’s deductions
Separate Community

4 Property
State
Property
State Schedule CA (540NR),
column E:
plus half of wife’s deductions
Schedule CA (540NR),
column E:
Schedule CA (540NR),
column E:
All income taxable All husband’s income Half of wife’s income
by California taxable by California plus taxable by California
half of wife’s income
taxable by California
Note: For information on income taxable by California, see Section F on page 2.

FTB Pub. 1031 1997 Page 7


J Which Form to File • Owe alternative minimum tax. Generally, if income is specifically excludable under
you filed federal Form 6251, Alternative California law on Schedule CA (540NR),
Residents – If you were a full-year resident of Minimum Tax – Individuals, you must com- column C; and
California in 1997 and you meet the basic fil- plete Schedule P (540NR), Alternative • Subtract income that is taxable under fed-
ing requirements outlined in Section K, below, Minimum Tax and Credit Limitations – eral law but not under California law (such
you must file either Form 540, California Nonresidents or Part-Year Residents. as California lottery winnings and social
Resident Income Tax Return; Form 540A, You should file Form 540NR if there is any security benefits) on Schedule CA
California Resident Income Tax Return; or question about the taxability of your income. (540NR), column B.
Form 540EZ, California Resident Income Tax By filing Form 540NR, you may avoid the Note: Do not subtract non-California source
Return for Single and Joint Filers With No imposition of penalties. You must attach a income to determine your total AGI from all
Dependents. copy of your federal tax return to your sources under California law.
However, if you file a joint return and either Form 540NR. When you compute your California AGI on
spouse was a nonresident in 1997, you must Children under 14 – California law is the Schedule CA (540NR), column E be sure to
file Form 540NR, California Nonresident or same as federal law for children under age 14 include:
Part-Year Resident Income Tax Return. who received more than $1,300 of investment • All income from every source while you
Nonresidents and Part-Year Residents – If income in 1997. were a resident of California; and
you were a full-year nonresident of California Note: You should file a return if you had Cali- • Income from California sources while you
in 1997 and you meet the basic filing require- fornia income tax withheld from your earnings were a nonresident.
ments outlined in Section K below, OR if you or made estimated tax payments.
were a resident for part of the year, you must See Schedule CA (540NR) for more
file Form 540NR. Regardless of your residency status, if you file information.
separate California returns, enter the amount
K Basic Filing Requirements you would have reported if you had filed a N Double Taxed Income
married filing separate return when the
Residents – You are required to file a return instructions for the California return say to If you paid taxes to California and to another
if you: enter an amount from your federal return. state on the same income, you may qualify for
Attach an explanation to your California return a tax credit for taxes paid to another state.
• Were single or unmarried and your showing how you split the income from your Get California Schedule S, Other State Tax
adjusted gross income (AGI) from all Credit, for more information.
joint federal return between you and your
sources was more than $8,307, or your
spouse. If you are required to attach a copy of
gross income from all sources was more O For Additional Information
your federal return to your California return,
than $10,384;
attach a copy of your joint federal return.
• Were married and you and your spouse General Toll-Free Phone Service
had a combined AGI from all sources of
more than $16,614 or had a combined L Filing Status Our general toll-free phone service is avail-
able from 7:00 a.m. until 8:00 p.m. Monday
gross income from all sources of more Your filing status for California must be the through Friday from January 2 through April
than $20,768; same as the filing status you used on your 15, 1998. The best times to call are between
• Were a dependent of another person and federal income tax return. However, for mar- 7:00 a.m. and 10:00 a.m. and between 6:00
your gross income from all sources was ried taxpayers who file a joint federal income p.m. and 8:00 p.m. Service is also available
more than your standard deduction; or tax return, two exceptions are allowed: on Saturday, April 4, and April 11, from 8:00
• Owe alternative minimum tax. Generally, if a.m. until 5:00 p.m. After April 15, service is
you filed federal Form 6251, Alternative 1. If either spouse was an active member of
the United States armed forces (or any available Monday through Friday, from 8:00
Minimum Tax – Individuals, you must a.m. until 5:00 p.m.
complete Schedule P (540), Alternative auxiliary military branch) during 1997, or
Minimum Tax and Credit Limitations – 2. If either spouse was a nonresident for the Call from within the
Residents, to see if you owe alternative entire year and had no income from United States . . . . . . . . 1-800-852-5711
minimum tax. California sources during 1997. Call from outside the
Children under 14 – California law is the In these cases, you may file either a joint United States, (not toll-free) 1-916-845-6500
same as federal law for children under age 14 return or separate returns. Call for hearing impaired
who received more than $1,300 of investment with TDD . . . . . . . . . . . 1-800-822-6268
income in 1997. M Avoid These Common Mistakes For federal tax questions, call
Nonresidents and Part-Year Residents – on Form 540NR 1-800-829-1040.
You are required to file Form 540NR if you Asistencia Bilingüe en Español
Avoid making time-consuming and costly mis-
had income from California sources and:
takes by reporting your AGI from all sources Para obtener servicios en Español y asisten-
• Were single or unmarried and your AGI as if you were a resident of California for the cia para completar su declaración de
from all sources was more than $8,307, or entire year. impuestos/formularios, llame al número de
your gross income from all sources was teléfono (anotado arriba) que le corresponde.
California tax returns start with federal AGI.
more than $10,384;
• Were married and you and your spouse However, there are differences between Cali-
fornia and federal tax law. Use Schedule CA
Hearing Impaired
had a combined AGI from all sources of Toll-free phone service is provided for the
(540NR) to convert your federal AGI to your hearing impaired with a Telecommunications
more than $16,614 or had a combined
total AGI from all sources under California Device (TDD). Call 1-800-822-6268. The
gross income from all sources of more
law. This means: Franchise Tax Board will also accept calls for,
than $20,768;
• Owe $1 or more of tax; • Copy your federal income, adjustments and relay messages to, any California state
• Were a dependent of another person and and deductions to the applicable lines on agency.
your gross income from all sources was Schedule CA (540NR), column A;
more than your standard deduction; or • Add income excluded on the federal return
(such as foreign income), unless the

Page 8 FTB Pub. 1031 1997