How to Legally Terminate California Residency (And Avoid an FTB Audit)

California lost $36 billion in adjusted gross income to interstate migration in 2021-2022 alone—the largest exodus of any state in American history.^[1] And the Franchise Tax Board (FTB) is watching every single departure.

Here's the uncomfortable truth: California doesn't just let high earners leave. The FTB completed 520 residency audits on out-of-state residents in 2023—up 126% from 2019.^[2] With personal income tax funding 61% of California's general fund, and the state's top marginal rate hitting 13.3% (the highest in the nation), the FTB has every incentive to challenge your departure.

If you're a remote worker, tech professional with stock compensation, business owner, or high-earner planning to leave California, this guide will show you exactly how to terminate California residency the right way—and what the FTB will look for if they decide to audit you.

You'll learn:

• How California actually defines "residency" (it's not what you think)
• The 19 factors the FTB uses to determine your residency status
• A step-by-step process for legally terminating California residency
• What triggers an FTB residency audit and how to defend against one
• Common mistakes that cost former Californians thousands in back taxes

How California Defines Residency (And Why It's Different)

Before you can terminate California residency, you need to understand exactly what that means under California law. California uses two separate tests—and you can be a California resident under either one.

Test 1: Domicile + Physical Presence

Under this test, you're a California resident if California is your domicile (your permanent home, the place you intend to return to) AND you're physically present in California for other than a temporary or transitory purpose. This is the subjective "intent" test.

Test 2: Physical Presence for 9+ Months (Safe Harbor)

Under the "safe harbor" test, anyone present in California for more than 9 months in a taxable year is presumed to be a California resident, regardless of domicile. This presumption can be rebutted, but the burden shifts to you.^[3]

The "Sticky State" Problem

Here's what makes California different from most states: once you've been a California resident, California presumes you remain a resident until you prove otherwise. This is codified in FTB Publication 1031, which states that "a person who has been a California resident continues to be a California resident until that person takes the necessary steps to become a resident of another state."

In practice, this means California will tax you on your worldwide income until you can demonstrate:

1. You have abandoned your California domicile
2. You have established a new domicile in another state
3. You are present in California only for temporary or transitory purposes

The 19 Residency Factors

The FTB evaluates residency based on the "closest connections" test—a holistic analysis of where your life is centered. FTB Publication 1031 identifies 19 factors that auditors use to determine residency:^[3]

#	Factor	What FTB Looks For
1	Location of all real property	Do you own a home in California? Is it available for your use?
2	State issuing driver's license	Which state's license do you hold? When did you surrender your CA license?
3	State of vehicle registration	Where are your vehicles registered? Did you pay CA vehicle license fees?
4	State of voter registration	Where are you registered to vote? Have you voted in California?
5	Location of bank accounts	Which state's address appears on your accounts?
6	Location of professional advisors	Where are your CPA, attorney, and financial advisor located?
7	Location of business interests	Where is your primary business activity? Where are partners/clients?
8	Location of social, religious, family ties	Church membership, club memberships, where family lives
9	Location of professional licenses	Where are you licensed to practice? Which address is on file?
10	Address on legal documents	Wills, trusts, deeds, contracts—which address appears?
11	Address on tax returns	Federal and state returns, employer W-2s
12	Address on credit card statements	Billing address consistency across accounts
13	Location of personal property	Furniture, art, valuables—where is your "stuff"?
14	Telephone records	Phone number area code, call/text patterns
15	Location of spouse and children	Where does your family live? Where do kids attend school?
16	Time spent in California vs. elsewhere	Day counts, travel patterns, time in each location
17	Location where income is earned	Where do you physically perform work?
18	Location of healthcare providers	Doctors, dentists, specialists—where do you receive care?
19	Location of pets	Vet records, pet licensing, boarding history

No single factor is determinative. The FTB looks at the totality of your connections to determine where your "closest ties" exist. This is why partial moves—keeping a California home "just in case" or leaving vehicles registered in California—create audit exposure.

Step-by-Step: How to Terminate California Residency

The following process outlines the exact steps required to legally terminate California residency. Each step addresses specific FTB residency factors and creates the documentation trail you'll need if audited.

Step 1: Establish Domicile in Your New State First

What to do: Before leaving California, establish a residential address in your destination state and begin creating ties there.

Why it matters: You cannot simply "abandon" California residency—you must replace it with residency somewhere else. California courts have consistently held that a person can only have one domicile, and abandonment of an old domicile requires acquisition of a new one. The landmark case Whittell v. Franchise Tax Board (1964) established that "a change of domicile requires both the physical act of moving to the new location and the intent to make that location one's permanent home."^[4]

Common mistake: Leaving California without a clear destination, thinking you can figure it out later. This creates a gap where California can argue you never truly left.

Timeline: Complete before or simultaneous with your California departure.

Step 2: Establish a "Bright Line" Departure Date

What to do: Choose a specific date on which you will terminate California residency. Make this date as early in the tax year as possible (ideally January 1 or shortly after).

Why it matters: California taxes residents on worldwide income for the portion of the year they were residents. If you leave mid-year, you'll file as a part-year resident—but the FTB will scrutinize whether your departure date is legitimate. A clear, documented departure date supported by contemporaneous evidence is essential.

What to document:

• Moving company receipts dated on or before your departure
• Lease termination or home sale closing documents
• Flight or travel records showing your final departure
• New state address established before or on departure date

Common mistake: Gradually transitioning over months without a clear departure date. The FTB will argue your residency continued until the last possible date.

Step 3: Surrender Your California Driver's License

What to do: Obtain a driver's license in your new state and surrender your California license. Do this within 30 days of your departure date.

Why it matters: Factor #2 in the FTB's 19-factor test. Your driver's license is sworn identification stating where you live. Holding a California license after claiming non-residency is a major red flag.

What to document: Keep a copy of your surrendered California license and your new state license. Note the dates on both.

Common mistake: Keeping your California license "for convenience" while also having a new state license. This dual-license situation is explicitly cited in FTB audits as evidence of continuing California residency.

Step 4: Re-Register Vehicles in Your New State

What to do: Register all vehicles in your new state within the timeframe required by that state's law (typically 30-90 days).

Why it matters: Factor #3 in the 19-factor test. California DMV records are accessible to the FTB. Continued California vehicle registration after claiming departure is inconsistent with non-residency and easily discovered.

Common mistake: Keeping vehicles registered in California to avoid new state registration fees or emissions requirements. This is one of the most common errors cited in FTB audit assessments.

Step 5: Cancel California Voter Registration and Register in New State

What to do: Register to vote in your new state and submit a formal cancellation of your California voter registration.

Why it matters: Factor #4. Voter registration is a sworn statement of residence. The FTB specifically checks voter records, and courts have consistently treated voter registration as strong evidence of domicile intent. In Appeal of J. Bracamonte (2021, OTA), the Office of Tax Appeals cited continued California voter registration as a key factor in sustaining the FTB's residency determination.^[5]

Common mistake: Registering in the new state without canceling California registration, or worse, voting in California after claiming to have left.

Step 6: Update All Financial Accounts

What to do: Change the address on all bank accounts, brokerage accounts, retirement accounts, and credit cards to your new state address.

Why it matters: Factors #5 and #12. Financial institutions report your address to the IRS and are discoverable by the FTB. Your 1099s, account statements, and credit card bills should all show your new state address from the date of your departure forward.

Critical detail: Some institutions have separate "mailing address" and "legal address" fields. Update both. The legal address is what appears on tax documents.

Step 7: Address Your California Real Property

What to do: If you own California real estate, make a clear decision: sell it, rent it out, or convert it to a vacation property with limited personal use.

Why it matters: Factor #1—and often the most heavily weighted. Maintaining a fully furnished, available-for-use home in California creates a strong presumption you haven't left. In Gaied v. Franchise Tax Board (2014), the court found that maintaining a California residence "kept and ready for use" was significant evidence of continued residency.^[6]

Step 8: Relocate Personal Property and Valuables

What to do: Move your personal belongings—furniture, art, clothing, valuables—to your new state. Cancel California storage units.

Why it matters: Factor #13. Where you keep your "stuff" indicates where you live. Maintaining significant personal property in California, especially in storage, suggests you haven't truly relocated.

What to document: Moving company invoices, shipping receipts, and inventory lists dated at or near your departure date.

Step 9: Update Professional Licenses and Memberships

What to do: Update your address with all professional licensing boards, membership organizations, and subscriptions.

Why it matters: Factors #6, #8, and #9. The FTB checks professional license registrations, bar association records, CPA licenses, and membership organizations. These records show where you hold yourself out as residing.

Step 10: Establish Healthcare Providers in Your New State

What to do: Find new doctors, dentists, and specialists in your new state. Transfer medical records. Update health insurance to your new address.

Why it matters: Factor #18. Continuing to see California healthcare providers—especially for routine care—suggests you haven't truly moved. Emergency care while visiting is fine; regular checkups are problematic.

Step 11: Document Your Time Outside California

What to do: Keep meticulous records of where you spend each day, especially for the first 2-3 years after departure.

Why it matters: Factor #16. If audited, the FTB will request documentation of your physical presence. Cell phone records, credit card transactions, travel records, and calendar entries can all be subpoenaed. If you can't prove where you were, the FTB may assume you were in California.

Case Study: How Jennifer Defended Her California Departure Under FTB Audit

5 Myths About Terminating California Residency

Myth 1: "If I spend fewer than 183 days in California, I'm not a resident"

The Truth: California has no 183-day rule. The 183-day rule is a common provision in other states, but California uses the "closest connections" test based on all 19 factors. You can spend only 100 days in California and still be a California resident if your closest ties remain there. Conversely, you can spend 200 days in California and be a non-resident if you're there for a temporary purpose and your domicile is clearly elsewhere.^[3]

The Cost: People rely on day-counting while ignoring the factors that actually determine residency, then fail audits.

Myth 2: "Getting a driver's license in another state ends my California residency"

The Truth: A new state driver's license is just one of 19 factors. If you get a Texas license but keep your California home, maintain California voter registration, and have most of your social ties in California, the license alone won't change your residency status. FTB auditors specifically look for people who change "easy" factors (license, voter registration) while maintaining substantial California ties.

The Cost: False confidence that leads to incomplete departures and audit exposure.

Myth 3: "There's a 'California exit tax' I'll have to pay"

The Truth: California does not have an exit tax. However, California does tax "California-source income" even for non-residents. This means that after you leave, California can still tax you on: income from California real estate, income from a business or partnership operating in California, and wages for work performed in California. Stock options and RSUs may also have California-source components based on where you worked during the vesting period.^[7]

The Cost: People either (a) wrongly fear leaving, or (b) wrongly assume they owe nothing post-departure and get surprised by California-source income assessments.

Myth 4: "The FTB only audits millionaires"

The Truth: While high earners face disproportionate audit attention, the FTB's residency audit unit has expanded significantly. With 520 audits in 2023, the FTB is casting a wider net. Anyone with income above $200,000-$300,000 who claims to leave California should consider themselves a potential audit target—especially if they have stock compensation, real estate, or business income.

The Cost: Mid-level professionals assume they're "too small" to be audited and skip proper documentation.

Myth 5: "I can just stop filing California returns"

The Truth: If you don't file a California return, the FTB can file a "substitute return" on your behalf—often assuming the worst (full-year residency at maximum tax rates). You'll then receive a Notice of Proposed Assessment with penalties and interest. The proper approach is to file a part-year resident return (Form 540NR) for your departure year, clearly documenting your departure date and reporting only income earned while a California resident.^[8]

The Cost: Substitute assessments with inflated tax, plus penalties, plus years of interest—all of which could have been avoided with proper filings.

Frequently Asked Questions About Terminating California Residency

How long does it take for California to "recognize" that I've left?

California doesn't issue a formal "non-resident" status. Your departure becomes official when you establish residency elsewhere and stop being a California resident under FTB criteria. However, the real test comes during an audit, which can occur up to 4 years after filing (or indefinitely if you didn't file). This is why documentation is critical—your departure isn't truly "safe" until the statute of limitations expires on your departure-year return.

What triggers an FTB residency audit?

Common triggers include: (1) large income in the year of departure, especially from stock compensation or business sales; (2) filing a part-year return after years of full-year returns; (3) information mismatches (W-2 showing California address while claiming non-residency); (4) California-source income reported on a non-resident return; (5) tips from third parties or cross-agency data sharing.

Can I leave California if my employer is still based there?

Yes—your employer's location doesn't determine your residency. What matters is where you perform your work. If you work remotely from Texas for a California employer, your wages are generally Texas-sourced (and not taxable by California). However, if you physically return to California to work—even occasionally—those days may generate California-source income. Track your physical work location carefully.

What about my RSUs and stock options?

California uses an "allocation" method for stock compensation. If you were granted stock options while a California resident, a portion of the income when those options vest or are exercised may be California-source income—even if you've left. The portion is typically based on the ratio of California work-days during the vesting period to total work-days. This is a complex area requiring tax professional guidance.^[7]

How long should I keep records after leaving?

At least 7 years, preferably longer. The FTB's standard statute of limitations is 4 years from the later of the filing date or due date, but can extend to 6 years for substantial understatements and indefinitely for fraud or failure to file. Keep all departure documentation—moving records, address change confirmations, day logs—for at least 7 years after filing your departure-year return.

What if I want to return to California later?

You can return to California at any time—just understand you'll become a California resident again upon return. The key is ensuring your initial departure was genuine and well-documented. If you leave for 6 months and then return, the FTB may argue you never truly left. If you leave for 3+ years with clear documentation and then return, your prior non-residency is much harder to challenge.

Ready to Leave California the Right Way?

California's aggressive residency audit program isn't going away. With $36 billion in AGI leaving the state annually, the FTB has every incentive to challenge departures—and they're getting better at it.

The good news: a properly documented departure, following the steps above, creates a defensible position that makes you a low-value audit target. Auditors prioritize easy wins—taxpayers with sloppy documentation and obvious continuing ties. A clean paper trail across all 19 factors isn't just good practice; it's audit deterrence.

Your Tax Base specializes in helping California residents establish compliant domicile in Florida and other no-income-tax states. Our service includes:

• Verified residential address in your destination state with proper documentation
• Utility account setup in your name
• DMV and voter registration guidance
• Departure documentation checklist aligned with FTB Publication 1031
• Day-tracking templates for audit defense

If you're planning to leave California—especially if you have significant income, stock compensation, or California real estate—schedule a free strategy call to discuss how to structure your departure for maximum protection.

Related Resources

• How to Establish Tax Residency in a No-Income-Tax State: Complete Guide
• Florida Domicile for Remote Workers: Complete Guide
• The 5 Primary Factors Tax Auditors Use to Prove Domicile Change
• Florida Domicile Services

References

1. Tax Foundation: State Migration Data, 2021-2022 IRS Statistics
2. Corporate Direct / FTB residency audit data, 2019-2023
3. FTB Publication 1031: Guidelines for Determining Resident Status (2024)
4. Whittell v. Franchise Tax Board, 231 Cal.App.2d 278 (1964)
5. Appeal of J. Bracamonte, California Office of Tax Appeals (2021)
6. Gaied v. Franchise Tax Board, California Court of Appeal (2014)
7. FTB Publication 1100: Taxation of Nonresidents and Individuals Who Change Residency
8. FTB: California Residency Status