Hacker News Reader

Comment by whoisjuan | Hacker News Reader

They are rubbing their hands because they see these high taxes on individuals as the bonanza of their low corporate tax policy. The problem is that people hate paying taxes more than companies do.

I have many friends that work in late stage startups who are planning to move to secondary offices in Seattle or Austin just to escape an eventual California taxation once they can convert their options because of an IPO or an acquisition.

This by itself it's not a big problem, but California is so damn expensive that it starts looking pretty unattractive to future prospective entrepreneurs that can opt for other less expensive states to run their business.

View on HN

Everybody has an anecdote, but the fact is that California continues to enjoy net domestic in-migration in the highest income group. Rich people do not avoid it because of taxation. They avoid other states because other states are terrible and they can afford to live here.

That's true partially. At least you have to segment extremely wealthy individuals from high-middle class individuals who don't care too much about this. Again this also anecdotal, but most people I know simply want a good quality of life at a reasonable cost.

At a certain point that stops being feasible if the cost of living keeps increasing and additionally you're taxed at the highest rates.

Also from an economic perspective, people will move close to where the jobs are. You hear a lot about startups hiring in the Bay Area but almost never hear the big incumbent businesses expanding there. Quite the opposite.

As with any macro-economic trend, it would pass years until you see the effects of these things, but I do believe that this doesn't play well for California's economy in the long-term.

Fortunately for California, there is more than Bay Area, so it's also possible that this is just a phenomenon applicable to the economic behavior and impact of the tech industry and tech employees.

Either that, or the very rich are good at avoiding even CA taxes.

> Rich people do not avoid it because of taxation. They avoid other states because other states are terrible and they can afford to live here.

shehasapoint

Other states are terrible? California has some nice places, but it isn’t Shanghai-La.

the in-migration is because employers choose where you're job is, not the other way around.

Even if you move, California taxes subsequent NQSO exercises if the options vested while working on California.

Semi-related question I've had about California taxes: are they actually enforced for non-residents? And if so, how?

California non-resident taxes seem to be quite aggressive. Any income from "California sources" for non-residents is considered taxable, but "California sources" includes any income made while you're physically in California. So if you are a salaried employee and vacation in California and work in a coffee shop for a few hours, or if you go to a conference in California and don't take vacation days, you're technically supposed to file California taxes and pay for any income on those days, at least as I understand it. Yet I know many coworkers who have gone to conferences for a full week in California and not known about this at all, and definitely never filed or paid California state income tax. And they have never been informed of this, let alone gotten fined or served prison time or otherwise been punished in any way.

The apparent impossibility of enforcement makes me think that any non-residents paying California taxes who aren't uber rich enough to attract the attention of journalists are just fools. Or am I just misunderstanding the policy?

Not sure your details are right, but thought I’d add an anecdote. One year I was abroad at tax time and dutifully filed. Couldn’t pay CA tax bill though due to a security restriction at their site. Will pay later I thought. Six months later they seized my bank account for a month, which was just a tad inconvenient.

Interesting. I was abroad for a bit too and I just delayed my federal taxes and Cali let me off the hook too.

Maybe filing a extension would have been better, dunno was 10+ years ago. Did not know about restriction until last minute. Still, illustrates CA is not shy and billing people, rather taking money with both hands.

California payors report payments to non-Californians (Form 592), so California knows about your CA-source income.

Merely attending a conference is generally not "CA work" whether or not you take vacation days. If the CA FTB were to even think of deciding as such the Legislature would smack them down immediately because a silly rule like that would devastate CA's convention tourism industry. However, presenting at a conference is work.

Working in CA remotely while on vacation is technically CA source income, but unless your employer or you report it, CA has no way of knowing.

In many situations, there's also thresholds that have to be hit for CA taxation to apply.

> Merely attending a conference is generally not "CA work" whether or not you take vacation days.

Are you sure? A quote from the CA FTB website [1]:

> A nonresident’s income from California sources includes income from a business, trade, or profession carried on in California. If the nonresident’s business, trade, or profession is carried on both within and outside California and the part outside California is separate and distinct from the part within California, only income from the part conducted within California is California source income.

If you're a salaried employee and you're attending a conference in California and being paid for those days when you're attending, why wouldn't that be considered California source income?

> However, presenting at a conference is work.

You mean if you are getting paid for said presentation? I agree that that one is 100% clearly taxable by California and would probably have been reported to the FTB by the conference organizers. I'm talking about situations where you don't make any additional income beyond your normal salary paid by your employer. If you meant salary received during unpaid presentations too, I'm curious what you think would differentiate that from merely attending the conference for work.

[1] https://www.ftb.ca.gov/individuals/fileRtn/Nonresidents-Part...

Because it's not work... unless your job involves going to conferences. And if it was work then taking a vacation day to go to a conference on the company's dime would be taxable.

If you're in doubt you can just call the FTB. Despite what others are saying in these comments, they are actually quite responsive and helpful.

> Because it's not work... unless your job involves going to conferences.

Right, I'm talking about professional conferences related to one's work, otherwise presumably you'd be taking vacation days to attend them.

And what defines "work" if it's not whatever I'm getting paid for? Like, if I spent a work day sitting on my ass eating snacks and watching YouTube, that's definitely not "work" in the colloquial sense, but I doubt FTB would be happy if I tried to avoid paying taxes on my salary for that day because I wasn't "working". I'd think going to a conference is a far clearer cut case in the "work" column than that.

Right, I'm also talking about professional conferences...

I don't have the bandwidth to try and explain why attending a professional conference as a non-presenter isn't work but sitting all day watching Youtube at your office is for out-of-state tax purposes.

I will say this: of the literally hundreds of millions of people that have attended professional conferences in CA as non-presenters, the CA FTB has never tried to tax them. If that's not sufficient evidence for you to accept what I'm saying, nothing is short of you hiring a tax lawyer to explain it to you in detail.

I think is more complex than that. The examples here give some good idea on different scenarios: https://www.ftb.ca.gov/forms/misc/1004.pdf

I don't think your statement paints a full accurate description of the situation though. They don't tax on you on capital gains that happen once you become a resident of a different state. So even though you have to pay the AMT for the vested - exercised options, you don't have to pay taxes to California at the time of selling your shares (this is, in theory, the only thing that really matters because it's the event that allows you to convert your shares into cash).

I might be wrong, so for anyone curious just read the document linked above.

You might be thinking of ISOs.

Ordinary income tax is due at exercise of a non qualified option (NQSO), which CA will tax.

Same is true with RSU releases.

Given housing prices in California, it seems like this sort of move benefits people in both states? Incentives in action.

Reply on news.ycombinator.com