The Straight Dope

Go Back   Straight Dope Message Board > Main > Great Debates

Reply
 
Thread Tools Display Modes
  #1  
Old 05-13-2012, 08:56 PM
emacknight emacknight is offline
Guest
 
Join Date: Mar 2003
Moving from California to Alaska--to avoid taxes!

Let's say, hypothetically, that I grew up dirt poor in California, always in the bottom 10% of income earners so never really paid much in income taxes. But I managed to scrounge up enough money to invest in a tech start up. It really wasn't hard since at the time the shares were worth $0.01. Every week when the rest of my co-workers bought lottery tickets, I bought shares.

After a couple of years I ended up with 2 hundred thousand of these worthless shares and then one day this crappy little start up just happens to become the next big thing. Over night my shares jump in value to $5000 making me a billionaire.

If I cash them in while I live in California I'll have to pay a whopping 10.55% on my gains. If on the other had I move to Alaska and wait a few months I'll pay nothing. Zero. Nadda. Zilch. I might even get some of that free oil money I hear so much about.

Of course, after cashing in my stock I can then move back to California--having paid them nothing-- where I can live off the gains I made and never pay another cent in income taxes.

So I have a couple of questions for the peanut gallery: what, if anything, do I owe California? And should I be allowed to move back without paying anything?
Reply With Quote
Advertisements  
  #2  
Old 05-13-2012, 08:59 PM
Lamar Mundane Lamar Mundane is offline
Charter Member
 
Join Date: Aug 2000
Posts: 7,781
That's a capital gain and it is subject to federal taxes, not state. You'll have to pay it in Alaska too. Income taxes have no role in that transaction as it is not income.
Reply With Quote
  #3  
Old 05-13-2012, 09:22 PM
John Mace John Mace is offline
Guest
 
Join Date: Dec 2002
Quote:
Originally Posted by Lamar Mundane View Post
That's a capital gain and it is subject to federal taxes, not state. You'll have to pay it in Alaska too. Income taxes have no role in that transaction as it is not income.
It's not salary, but it most certainly is income.
Reply With Quote
  #4  
Old 05-13-2012, 09:24 PM
florez florez is offline
Guest
 
Join Date: Dec 2011
Quote:
Originally Posted by Lamar Mundane View Post
That's a capital gain and it is subject to federal taxes, not state. You'll have to pay it in Alaska too. Income taxes have no role in that transaction as it is not income.
This, and the "free oil money" aka the Alaska PFD was $1,174 this year, and my AK heating bills were well over twice that amount. You have to be living in this state for one year to qualify for a PFD, and after one freezing cold winter in Alaska, many go running back home to California as fast as their frozen little feet can carry them.
Reply With Quote
  #5  
Old 05-13-2012, 09:28 PM
Voyager Voyager is offline
Member
 
Join Date: Aug 2002
Location: Deep Space
Posts: 35,118
Let's look beyond the capital gains. After he sells his shares, he will invest them, and will be making income on them, so he kind of has a point.
IIRC he is Canadian and so doesn't really understand good weather, but if in January when he is dealing with six feet of snow and almost no daylight while we in California complain if it gets down to freezing over night, and he still thinks this is a good deal, more power to him.
Reply With Quote
  #6  
Old 05-13-2012, 10:05 PM
Algher Algher is offline
Member
 
Join Date: Jan 2007
Location: Southern California
Posts: 3,919
California treats capital gains as income - so you hit the top rate for state income tax (which is above 10%).
Reply With Quote
  #7  
Old 05-14-2012, 07:59 PM
iamthewalrus(:3= iamthewalrus(:3= is offline
Guest
 
Join Date: Jul 2000
Quote:
Originally Posted by emacknight View Post
So I have a couple of questions for the peanut gallery: what, if anything, do I owe California? And should I be allowed to move back without paying anything?
You don't owe California anything.

We've agreed, for the sake of simpler accounting and some other reasons, that investment income is only taxed when it's realized. We've also agreed on a standard for residency. As long as you legitimately live in a new state for as long as it takes to be a legal resident, the old state no longer has a claim on your income.

You should of course be allowed to move back later if you want, although I'd hope that the residency requirements are onerous enough that people can't just take a short vacation to avoid major taxes on capital gains.

Since I'm guessing this OP is really about Eduardo Saverin, I'd say the fundamental difference between him and your hypothetical is that moving between states is our right as citizens (see United States v Guest), while there is no established right to move between countries. Doing so requires that the country deem you worthy by whatever standards it chooses. Renouncing one's citizenship is a much bigger deal than moving from one state to another.
Reply With Quote
  #8  
Old 05-14-2012, 08:11 PM
Fear Itself Fear Itself is offline
Charter Member
 
Join Date: Apr 1999
Location: 847 mi. from Cecil
Posts: 29,073
By virtue of making more money than me, you owe all of your net gains to California. I thought we settled that?
Reply With Quote
  #9  
Old 05-14-2012, 08:31 PM
BrotherCadfael BrotherCadfael is offline
Guest
 
Join Date: Feb 2003
Years ago, I worked for a government agency which had an overseas department. People would get posted to this other location for three years, and then come back to the States.

It turned out that, if they went over, and then came back to the same state, they would owe state taxes for their salary for those three years. However, if they came back and lived in a different state, then they paid neither state's taxes.

So, people who lived in Maryland would go, and then come back to Virginia, and vice versa. They only had to stay in the other state for a year, so what most of them did was to rent their houses out for four years, and rent in the other state for the last year, before returning home.
Reply With Quote
  #10  
Old 05-14-2012, 11:32 PM
Mosier Mosier is offline
Guest
 
Join Date: Oct 2003
Quote:
Originally Posted by John Mace View Post
It's not salary, but it most certainly is income.
Selling shares is most certainly not income, for the purposes of calculating income tax.
Reply With Quote
  #11  
Old 05-15-2012, 12:54 AM
Algher Algher is offline
Member
 
Join Date: Jan 2007
Location: Southern California
Posts: 3,919
Quote:
Originally Posted by Mosier View Post
Selling shares is most certainly not income, for the purposes of calculating income tax.
For the state of California - it is income. For the United States, it is capital gains.
Reply With Quote
  #12  
Old 05-15-2012, 12:33 PM
iamthewalrus(:3= iamthewalrus(:3= is offline
Guest
 
Join Date: Jul 2000
Quote:
Originally Posted by Mosier View Post
Selling shares is most certainly not income, for the purposes of calculating income tax.
It is for federal taxes, too. You have to state it on Schedule D of your 1040 when you file your Income Tax Return, and you have to pay taxes on it according to the capital gains tax rates.
Reply With Quote
  #13  
Old 05-15-2012, 01:37 PM
pkbites pkbites is offline
Charter Member
 
Join Date: Apr 2000
Location: Majikal Land O' Cheeze!
Posts: 8,222
Quote:
Originally Posted by florez View Post
This, and the "free oil money" aka the Alaska PFD was $1,174 this year, and my AK heating bills were well over twice that amount. You have to be living in this state for one year to qualify for a PFD, and after one freezing cold winter in Alaska, many go running back home to California as fast as their frozen little feet can carry them.
Quote:
Originally Posted by Voyager View Post
Let's look beyond the capital gains. After he sells his shares, he will invest them, and will be making income on them, so he kind of has a point.
IIRC he is Canadian and so doesn't really understand good weather, but if in January when he is dealing with six feet of snow and almost no daylight while we in California complain if it gets down to freezing over night, and he still thinks this is a good deal, more power to him.



You go to Anchorage, rent the cheapest apartment you can find, and get an Alaska drivers license. Voilą you are a resident of Alaska. You are allowed to leave a place you are a resident of and still be a resident.

My brother-on-law is a resident of Wisconsin, a home here, DL, files a Wisconsin tax return and all. He hasn't been anywhere near this state for over 4 years. He's still a resident.
Reply With Quote
  #14  
Old 05-15-2012, 02:29 PM
Voyager Voyager is offline
Member
 
Join Date: Aug 2002
Location: Deep Space
Posts: 35,118
Quote:
Originally Posted by pkbites View Post



You go to Anchorage, rent the cheapest apartment you can find, and get an Alaska drivers license. Voilą you are a resident of Alaska. You are allowed to leave a place you are a resident of and still be a resident.

My brother-on-law is a resident of Wisconsin, a home here, DL, files a Wisconsin tax return and all. He hasn't been anywhere near this state for over 4 years. He's still a resident.
I don't know how it works for investment income, but for salary you pay taxes where you earn it, split to some extent to where you live. I trust the computers would spit out the case of someone who earned income in California and claimed full year residence in Alaska. California also has laws about getting a California license if you live here long enough, and registering your car here ditto. I'm not saying it is impossible to evade the system, but my sense is the OP wanted to do things legally.

I'm pretty sure there is a question on the tax form about how long you lived in the state, which is not legal residence. So I think to pull this off you'd have to lie on your tax form. Probably not a good idea.
Reply With Quote
  #15  
Old 05-15-2012, 02:37 PM
iamthewalrus(:3= iamthewalrus(:3= is offline
Guest
 
Join Date: Jul 2000
Quote:
Originally Posted by pkbites View Post
My brother-on-law is a resident of Wisconsin, a home here, DL, files a Wisconsin tax return and all. He hasn't been anywhere near this state for over 4 years. He's still a resident.
If he's living, working, and earning income in other states, those other states may still expect to tax him on that income. And the state he's a resident of might, too (I don't know the specifics of WI or other states' laws on this).

I know that if you normally live elsewhere, but get assigned to California for a few months for a project and you temporarily reside in the state, CA considers the income you earn while working there to be CA taxable income.

I'd be surprised if you could legally remain the resident of a state that you haven't even been in for years (though I'm sure there are plenty of exceptions for all sorts of things), especially if you are actually living in another state or states during that time.
Reply With Quote
  #16  
Old 05-15-2012, 06:26 PM
florez florez is offline
Guest
 
Join Date: Dec 2011
Quote:
Originally Posted by pkbites View Post
:
You go to Anchorage, rent the cheapest apartment you can find, and get an Alaska drivers license. Voilą you are a resident of Alaska. You are allowed to leave a place you are a resident of and still be a resident.
For PFD eligibility, you report all absences from the state over 90 days, and no PFD for over 180 day absences from the state. People get in trouble for fraud just for forgetting to report, or not keeping track of days in state.
Reply With Quote
  #17  
Old 05-18-2012, 02:06 AM
pkbites pkbites is offline
Charter Member
 
Join Date: Apr 2000
Location: Majikal Land O' Cheeze!
Posts: 8,222
Quote:
Originally Posted by iamthewalrus(:3= View Post
If he's living, working, and earning income in other states, those other states may still expect to tax him on that income. And the state he's a resident of might, too (I don't know the specifics of WI or other states' laws on this).
He stays at a condo in Boca Raton that my father in law owns. He makes no income in the state of Florida that I am aware of. He holds a valid Wisconsin DL listing a residence in western Wisconsin that he owns. His son lives in the residence. He owns a business here that his son runs entirely, but he draws income from it, so he files and pays state income tax.

I know not why he does things like this.
Reply With Quote
  #18  
Old 06-01-2012, 01:44 PM
emacknight emacknight is offline
Guest
 
Join Date: Mar 2003
Quote:
Originally Posted by iamthewalrus(:3= View Post
Since I'm guessing this OP is really about Eduardo Saverin,
Yup.

Quote:
Originally Posted by iamthewalrus(:3= View Post
You don't owe California anything
...
the old state no longer has a claim on your income.
Okay, so it seems we've established this point. And for some reason no one seems to have a problem with what you wrote. Within the European Union and economic zone, citizens of one country are free to move to another country. They will subsequently pay taxes in the country to which they are a resident, and not to the one they are a citizen of (except France in some cases).

Quote:
Originally Posted by iamthewalrus(:3= View Post
You should of course be allowed to move back later if you want, although I'd hope that the residency requirements are onerous enough that people can't just take a short vacation to avoid major taxes on capital gains.
I don't know of any state that does such a thing. But the US as a country does, and number of posters on this message board agree with the practice.

Quote:
Originally Posted by iamthewalrus(:3= View Post
Renouncing one's citizenship is a much bigger deal than moving from one state to another.
Why? I have Irish citizenship but have never lived there nor have I ever paid taxes there. I grew up in Canada, have Canadian citizenship, and paid taxes while I lived there. After leaving I stopped paying taxes there.

I now live in the US, do NOT have US citizenship, and currently pay US taxes. When I leave the US (and give up my green card) I will NOT continue to pay US taxes.

If on the other hand I decided to get US citizenship in the fall, I'd have pay taxes to the US for the rest of my life, regardless of where I live.

For some reason people here have a very strange attachment between taxes and citizenship. One that they're willing to completely overlook when it comes to state taxes, but argue until they're blue in the face when it comes to federal taxes.
Reply With Quote
  #19  
Old 06-01-2012, 02:08 PM
Little Nemo Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 59,740
I never said that renouncing your citizenship was a legal issue. Obviously, it's legal. To me it's a moral issue.

And while they won't admit, it's a moral issue to the people who are arguing with me as well. It's perfectly legal for the United States to levy an income tax against people living in other countries. What people are arguing is that the United States shouldn't do this - and that's a moral argument.

My moral opinion on this subject is that my citizenship as an American is more important than money. I wouldn't renounce my citizenship for money. Obviously, there are people that feel otherwise. But you're not going to convince me to admire these people.
Reply With Quote
  #20  
Old 06-01-2012, 06:09 PM
emacknight emacknight is offline
Guest
 
Join Date: Mar 2003
Quote:
Originally Posted by Little Nemo View Post
I never said that renouncing your citizenship was a legal issue. Obviously, it's legal. To me it's a moral issue.
How is it a moral issue? What does morality and citizenship have to do with one another?

Quote:
Originally Posted by Little Nemo View Post
It's perfectly legal for the United States to levy an income tax against people living in other countries.
Should California levy a tax on people living in Alaska? Pretty simple question. What do I owe California after I've left?

Quote:
Originally Posted by Little Nemo View Post
My moral opinion on this subject is that my citizenship as an American is more important than money. I wouldn't renounce my citizenship for money. Obviously, there are people that feel otherwise. But you're not going to convince me to admire these people.
Why do you have to feel anything for them? Right now you seem to have nothing but scorn and contempt. Who cares what citizenship someone has? How is it in any way a moral issue?
Reply With Quote
  #21  
Old 06-01-2012, 11:28 PM
Little Nemo Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 59,740
Quote:
Originally Posted by emacknight View Post
How is it a moral issue? What does morality and citizenship have to do with one another?

Should California levy a tax on people living in Alaska? Pretty simple question. What do I owe California after I've left?

Why do you have to feel anything for them? Right now you seem to have nothing but scorn and contempt. Who cares what citizenship someone has? How is it in any way a moral issue?
There are some people on this board who appear to be unable to understand what other people are saying in their posts.

But in all the time I've been here, you're the only person I've encountered who, on a regular basis, gives every appearance of not understanding what you're saying in your own posts.

How is it a moral issue? It's a moral issue in exactly the way you just described it.

You just asked how it was a moral issue, explained the moral issues involved, and then asked again how it was a moral issue. You just answered your own question but you apparently don't understand the answer that you gave.

I'll admit it. You've got me at a loss as to how to respond.
Reply With Quote
Reply



Bookmarks

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is Off
HTML code is Off

Forum Jump


All times are GMT -5. The time now is 08:26 AM.


Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2014, vBulletin Solutions, Inc.

Send questions for Cecil Adams to: cecil@chicagoreader.com

Send comments about this website to: webmaster@straightdope.com

Terms of Use / Privacy Policy

Advertise on the Straight Dope!
(Your direct line to thousands of the smartest, hippest people on the planet, plus a few total dipsticks.)

Publishers - interested in subscribing to the Straight Dope?
Write to: sdsubscriptions@chicagoreader.com.

Copyright © 2013 Sun-Times Media, LLC.