Where the money resides: Determining your residency in a state

The 183 day rule is a major part of residency, but it makes it seem like you can only be a resident of one state. However, I just want to clarify that’s totally not true.You can also end up being a resident of 2 states…

Residency plays a huge part in whether you have to pay income taxes and file a tax return in a state. As an example,  I’ve laid out some of the rules for residency in California.

Full-time resident

According to the California Franchise Tax Board, a person will be presumed to be a California resident for any taxable year in which you spend more than nine months in this state.

A company that is incorporated in California is legally a resident of California.

Part-year resident 

If you lived inside or outside of California during the tax year, you may be a part-year resident. Part-year residents can be a business that started operating in California but maybe relocated to a different state sometime during the year.

Nonresident 

A nonresident is a business that cannot be a resident or part-year resident. As a nonresident, you pay tax on your taxable income made in California. A good example of this is an e-commerce business selling goods. Based on factors including, but not limited to, income and business entity formation, the business may be required to file an income tax return.

States have different rules when it comes to residency. You should check your state(s) residency rules to confirm which type of residency your business falls under based on your business activities in that state.