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Can you provide details on what legal arguments were used to beat the CA FTB?

gnicholas 6y ago
It's been a while, and I was never a state tax guy (fed/intl for me). I imagine the theory is based on how states divvy up income between them. Imagine you move from CA to CO, and in 2021 you live entirely in CO. Well, CO is going to say anything you earned during 2021 is fully theirs to tax. So if you sell $10M of stock, they'll want their 4%. But if CA says they want 13% of your $10M, on the grounds that you "earned" it while living in CA, then that's not fair to you.
- joshuamorton 6y ago
  Why isn't it fair to you? Usually the laws are such that you pay the max, not the sum, of the two state taxes.
  - gnicholas 6y ago
    Well in theory you'd pay the max of two states that you legitimately owe taxes to. But if one state that you should not owe taxes to decides to assess you, the other state (CO in my example) would not just roll over and give up their revenue. So instead you get handed two separate tax bills (and post 2018, you can't deduct more than $10k in SALT, making this hurt even more).
    - joshuamorton 6y ago
      I think one of us is misunderstanding something. If CA and CO both claim you owe them money, you pay the value to CO, and then you only owe the difference to CA, so the most state tax you pay is 13%. CO gets 4% and CA gets 13-4%=9%. I've filed my taxes split between CA and another state before and that's what you do. If CA comes after you for not filing taxes, you may owe fines, but you can still deduct other state tax when filing CA state taxes. SALT isn't relevant. Like to give an example, if I found a startup in SV, and run it their for 5 years, move to Denver and go public and cash in my options as a CO resident, I'd argue that most of that money was earned while in CA. California enforcing that doesn't seem unfair as long as they treat it the same as any other income (allow you to deduct other state tax)
      - gnicholas 6y ago
        It sounds like you are taking the position of the CA taxing authorities, who have lost in court on this point. You're welcome to do so (with your own money!), but other CA taxpayers would be wise to embrace the courts' position.
        joshuamorton 6y ago
        I asked why it would be unfair, not what the legality was.
        gnicholas 6y ago
        Ah, I thought fairness meant in the current legal system. If there were different laws it would be different. But even with your example, imagine starting a company in CA, having remote engineers around the world building your company, and then having all of your gains taxed in CA when you later sold the company (but no longer lived there). Why would that be fair? What if you sold it 5 or 10 or 20 years after leaving? Part of the reason we don’t let CA tax you after you leave is because doing so opens up a can of slippery slopes, to mix metaphors.

It's been a while, and I was never a state tax guy (fed/intl for me). I imagine the theory is based on how states divvy up income between them. Imagine you move from CA to CO, and in 2021 you live entirely in CO. Well, CO is going to say anything you earned during 2021 is fully theirs to tax. So if you sell $10M of stock, they'll want their 4%. But if CA says they want 13% of your $10M, on the grounds that you "earned" it while living in CA, then that's not fair to you.

joshuamorton 6y ago
Why isn't it fair to you? Usually the laws are such that you pay the max, not the sum, of the two state taxes.
- gnicholas 6y ago
  Well in theory you'd pay the max of two states that you legitimately owe taxes to. But if one state that you should not owe taxes to decides to assess you, the other state (CO in my example) would not just roll over and give up their revenue. So instead you get handed two separate tax bills (and post 2018, you can't deduct more than $10k in SALT, making this hurt even more).
  - joshuamorton 6y ago
    I think one of us is misunderstanding something. If CA and CO both claim you owe them money, you pay the value to CO, and then you only owe the difference to CA, so the most state tax you pay is 13%. CO gets 4% and CA gets 13-4%=9%. I've filed my taxes split between CA and another state before and that's what you do. If CA comes after you for not filing taxes, you may owe fines, but you can still deduct other state tax when filing CA state taxes. SALT isn't relevant. Like to give an example, if I found a startup in SV, and run it their for 5 years, move to Denver and go public and cash in my options as a CO resident, I'd argue that most of that money was earned while in CA. California enforcing that doesn't seem unfair as long as they treat it the same as any other income (allow you to deduct other state tax)
    - gnicholas 6y ago
      It sounds like you are taking the position of the CA taxing authorities, who have lost in court on this point. You're welcome to do so (with your own money!), but other CA taxpayers would be wise to embrace the courts' position.
      - joshuamorton 6y ago
        I asked why it would be unfair, not what the legality was.
        gnicholas 6y ago
        Ah, I thought fairness meant in the current legal system. If there were different laws it would be different. But even with your example, imagine starting a company in CA, having remote engineers around the world building your company, and then having all of your gains taxed in CA when you later sold the company (but no longer lived there). Why would that be fair? What if you sold it 5 or 10 or 20 years after leaving? Part of the reason we don’t let CA tax you after you leave is because doing so opens up a can of slippery slopes, to mix metaphors.