How can California charge taxes to non-residents?

This came up at lunch today: A co-worker’s sister from out-of-state reminded her that she should not retire in California and then move away. It seems that California will charge you income tax on eny money you make for the rest of your life if you retire here, even if you are a resident of another state.

I see a number of things wrong with it:

  1. The person is not using any of California resources, and so should not have to pay for them. (That’s why they paid taxes when they lived here.)

  2. The person may live in a state that has income tax (which is most of them). If California charges them income tax, they are paying for the same income twice. (i.e., double taxation)

  3. A non-resident does not have voting privileges (i.e., “Taxation without representation”)

This is not the first time I’ve heard of this. How can it be legal for California to collect income taxes on non-residents who do not generate any income in California?

I can’t speak to the issue as it pertains to California, but I can tell you that California isn’t alone. Many states tax people, pro athletes in particular, for the portion of the income that they earned while in that city or state. I’ve searched on this before, I’ll see if I can find some links.

The theory is that the retirement income derives from income earned in the state.
Another matter: the ones that I remember doing while I worked at H&R Block (All States) were tax deferred at the time, like a 401K. That is to say, no income tax was levied when the income was earned. A basic principle of income tax is that it all evens out - if you don’t pay at one end, you pay at the other. Therefore, the retirement income is taxed (usually at a lower rate), rather than the original.

Mostly, CA does it because they’re evil bastards. But that’s an opinion. :smiley:

Here is a story that relates to Alberta, but in general the idea is the same where ever it is used. I must say that I’m not sure that the home athletes are taxed the way they will be in Alberta.

So? The money itself is paid to the person in whatever state he or she resides. If the person does not get any benefits from California (or where ever) why should the person have to pay taxes there?

Does this “eternal tax” only apply to retirees? I’m planning on moving to Washington ASAP. When I leave my job I’ll have to “roll it over” into an IRA. Will California come looking for me in 30 years when I retire?

Probably. That’s why I call it “Kalifornia.”

The conversation here is about The Source Tax.

States like New York and California used to aggressively pursue former residents who retired to other states and demand continued tax payments from them.
This came to a halt in 1996:

State & Local Tax Bulletin (February 1996)
Federal Statute Enacted Prohibiting State Income Taxation of Certain Pension Income of Nonresidents
On January 10, 1996, President Clinton signed into law H.R. 394, now P.L. 104-95, which prohibits state taxation of certain pension income of nonresidents received after December 31, 1995.

This would not surprise me at all.

A full nine months after I moved from California to Nevada, I got a nasty letter from the California DMV, addressed to me in NEVADA, (not just forwarded) demanding to know why I had not yet renewed my licence plates in California.

I jokingly mentioned this to the DMV in Nevada and they warned me to write back to California with a letter explaining I moved. They said it was not uncommon for the California DMV to garnish salaries out of state for what they perceived as non-payment of CA auto registration.

Doug Bowe: So they haven’t done it in a while. Thanks for the info; I’ll pass it on.

If you did not use the full 12 months you paid for, you should ask for a refund of the unused portion. A friend in the used car wholesaling business makes a killing on collecting the unused portion of licensing fees paid. Washington, Oregon, and California all refund the unused fees. Nevada is the only state that does not refund the licensing fees.