In recent years population growth in California has slowed dramatically, and many events (notably the 2025 wildfires) motivated Americans to move. Sometimes to another state, but, quite often, they move to another country. In this article, we’ll cover why moving to another country does not necessarily end your California tax exposure.
This is especially true if you:
- keep a California employer and move abroad as a remote worker
- have a California business entity
- own a California property, or
- have other meaningful ties that suggest that you are still domiciled in California.
The Franchise Tax Board is proactive, sophisticated, and regularly reviews cases where someone claims to have left California but still has facts pointing back to the state.
All of this underscores the need to explore breaking California domicile as part of your relocation strategy, though doing so will depend on your individual circumstances.
Why California Is So Difficult to Leave for Tax Purposes
While any move abroad comes with logistical challenges, California is one of a cohort of states referred to by accounting professionals as a “sticky state” for tax purposes. This means that it can be difficult to sever domicile for tax purposes. Where you are domiciled depends on your specific set of circumstances, including but not limited to where you spend most of your time, where your spouse lives, where your children are enrolled in school, where your place of work is located, and where you perform that work.
Moreover, it’s very common for Americans to move abroad in the context of a 1-2-year test to see if they really like it and want to stay.
But if you move abroad for one or two years and the facts of your life clearly indicate your “real life” is back in California, California may argue that you never really left, that you were just temporarily away.
That argument becomes easier for the state if you keep a California home, a California driver’s license, California voter registration, a California employer, a California business, or close family and personal ties there. Although these factors give the Franchise Tax Board an argument, that doesn’t mean they’ll necessarily win it.
Read later: Selling a Primary Residence Before Moving Abroad: Taxes and Timing
This is not just an administrative annoyance
California’s income tax rates are among the highest in the country, and California does not recognize some common tax-relief options that are available to expat taxpayers at the federal level. As an example, California does not recognize the Foreign Tax Credit, meaning that your foreign-earned income in Spain or France may be offset in the US at the federal level, but vulnerable to taxation at the state level by the Franchise Tax Board. Unfortunately, this is one of the few scenarios in which you would be subject to Double Taxation.
You may also like: Spain Digital Nomad Visa: The Guide for Remote Workers
California Domicile vs. Residency for Tax Purposes
Residency often describes where you live during a particular year. Domicile goes deeper. It is your true, permanent home, or the place you intend to return to when your time elsewhere ends.
For someone moving abroad, this distinction matters because California is going to look at all of the details surrounding your move, narrow its eyes, and ask: did you actually leave California, or are you simply abroad for now?
No one fact is everything. But together, the facts tell a story. And California is very interested in what that story says.
California State Tax Withholding for Remote Workers Abroad
The most common California issue we see is not necessarily the entrepreneur who fully cuts ties and starts a new business abroad; most entrepreneurs are well versed in California state taxes and have a healthy respect for (read: fear of) the Franchise Tax Board.
The Americans who tend to get hit by the California state tax door on the way out? The remote worker who keeps a W-2 job with a California employer.
Consider this increasingly common situation
A person gets permission to work remotely, moves to Europe, and assumes that because they are physically sitting in Madrid, Paris, or Lisbon, California no longer has much to do with them.
Unfortunately, the payroll setup may say otherwise
If your W-2 remains connected to California, California withholding may continue. The income may still be treated as California-connected, or California may still argue you remain domiciled there. This can be especially surprising for workers choosing between salary bands in different states. Remote workers employed through a California business may be financially better off taking a lower salary in a different state to get relief from California’s tax system.
Put another way: A California salary band may look attractive on paper. But if that salary comes with California tax exposure when you have every intention of residing abroad, the after-tax result may not be worth it.
It’s important for remote workers moving abroad to understand that earning “a California salary” does not necessarily equate to “best tax outcome.”
If you are comparing a California-based remote role with a lower-paying role based in a no-tax or lower-tax state, the right question is not just what the gross salary is. The right question is what you actually keep after federal, state, and foreign taxes are all considered together.
For self-employed people, the fact pattern can sometimes be cleaner. If you are genuinely working from abroad, your place of work is often where you are physically sitting. But that does not make the analysis automatic. Your entity structure, client base, contracts, sourcing, and where the business is registered still play an important role in the set of facts you organize to get your tax story straight.
Want to simulate your options with an expert? Reach out to our team at Rook to organize a call.
What Happens If Your Business Is Still Registered in California?
For business owners, there is another layer: your personal move does not automatically move your business.
You may successfully break California domicile as an individual and still have a California business problem if your LLC, partnership, or corporation remains registered in California.
For example: If you own a California LLC and move to Italy, the fact that you now live in Italy does not make the California LLC irrelevant to the Franchise Tax Board. In fact, the business will generally still have California filing obligations, California fees, and California tax exposure. If the business is a corporation, California corporate tax may still be relevant. If it is an LLC or partnership, you may still face nonresident California tax issues tied to the business.
This is where “I left California” isn’t a particularly helpful tax argument. To make one, we need to dig into: “What exactly left California?”
Here are just a few questions we run through when analyzing a California business owner’s situation:
- Did you leave personally?
- Did your base of operations leave?
- Did the entity leave?
- Did the contracts move?
- Did the bank accounts move? What about payroll? Stripe?
- Did the business registration move?
When planning to move abroad from California, the practical path may involve closing the California entity and opening a new entity elsewhere. That can mean new Employer Identification Number (EIN), bank accounts, new contracts, new payment processors, new bookkeeping workflows, and possible operational disruption.
Good thing we all got into business because we love admin, huh?
Jokes aside, it really is much better to plan that process intentionally than to discover later that your “old” California entity is still creating tax obligations.
Related reading: S Corp vs LLC When Moving Abroad
Is Moving to Nevada Enough to Break California Domicile?
Nevada comes up constantly in California exit conversations because it is close, familiar, and has no state income tax.
But a Nevada mailbox is not a tax strategy, whatever the TikTok gurus might say. California is well aware of superficial moves. If your real life is still in California, a Nevada registered agent, mailing address, or office location will not constitute a recognized change in your domicile.
As a reminder, proving domicile requires neatly laying out a set of facts that fit the story you’re telling. So, if you’re trying to say that you actually live in Nevada, not California, be prepared to prove your responses to:
- Do you actually live in Nevada?
- Is your home there?
- Is your family there?
- Are your daily routines there?
- Are your doctors, schools, pets, community, business operations, and records there?
The above is just a sampling of questions to consider, but if any “nos” are popping up already, the Nevada story may not hold.
Driver’s license and voter registration are useful examples of facts that can contribute to the story of your tax domicile
To be very clear, changing a driver’s license or voter registration does not, by itself, break California domicile. But keeping them in California can potentially weaken your case, and changing them can strengthen the story when the rest of the facts line up.
Think of these facts less like a checklist and more like evidence. You are building the case that California is no longer the center of your personal and economic interests.
By all means, you may wish to keep your ability to vote in local elections. After all, there should be no taxation without representation. But we must be prepared to argue the merits of your position that, despite maintaining the right to vote, you are not domiciled in California.
Final Thought: California Exit Planning Is a Business Strategy Issue
For US business owners and remote workers abroad, moving abroad from California may affect compensation, entity structure, local-country tax treatment, payroll, withholding, banking, and long-term growth. At Rook CPAs, we provide several options to help you plan a tax-optimized move abroad, which includes exploring the potential to break California tax domicile. Please submit an inquiry form describing your situation here.
