Introduction
California’s high taxes have driven many residents to move out of state, especially to states like Texas, Nevada, and Florida. But rumors of a “California Exit Tax” continue to spread. In 2025, what is fact vs. fiction? Here’s the truth about whether California can tax you after you move.
What Is California’s So-Called “Exit Tax”?
Applicable Code: California Revenue & Taxation Code §§17041, 17591, 18001
There is no official “exit tax”, but when Californians move and still owe state income tax—due to stock options, deferred income, or real estate sales—the Franchise Tax Board (FTB) can continue to pursue those liabilities.
Does California Really Have an Exit Tax?
No, California does not impose a flat “exit tax” just for moving. However:
- The state can tax you on income earned while you were a resident, even if it’s received later
- The FTB can audit your exit to determine whether you truly left the state
- California can tax California-sourced income even after you leave
When You May Still Owe Taxes After Leaving
Common examples include:
- Stock options or RSUs earned while working in California
- Installment sale income from real estate or business sold in CA
- Deferred bonuses or retirement payouts tied to California work
- Business income from California-based operations
If you earned it while you were a California resident, California still wants its cut, even if you live in another state when it’s received.
Capital Gains, Stock Options, and Deferred Compensation
If your capital gain is tied to California property, stock granted during California employment, or a business located in California, it’s considered California-source income and is still taxable by the state—even if you’re a nonresident when you sell.
Example:
You receive RSUs in 2023 while working in California and move to Texas in 2024. When those RSUs vest in 2025, California can tax the portion earned while you were a resident.
How the Franchise Tax Board Tracks Former Residents
The FTB uses a “facts and circumstances” test to determine whether you’ve truly left the state.
They examine:
- Where your primary residence is located
- Location of your spouse and children
- Driver’s license and voter registration
- Days spent in California
- Continued business ties to the state
- Addresses used on tax returns, bank accounts, and legal documents
If the FTB finds your exit was not legitimate, they may continue taxing you as a resident.
Step-by-Step Guide to Avoid Trouble When Leaving California
Step 1: Establish a permanent residence in your new state
Step 2: Cancel your California driver’s license and voter registration
Step 3: File a Part-Year Resident Return (Form 540NR) for your exit year
Step 4: Sever business and employment ties in California
Step 5: Maintain documentation showing your intent to leave
Step 6: Allocate income carefully on your tax returns, especially RSUs and gains
Step 7: Work with a CPA to ensure compliance and defend your position if audited
Conclusion
There is no blanket “exit tax,” but leaving California without planning could lead to surprise tax bills on income you thought was safe. From capital gains to deferred comp, California can still tax you after you move—unless you take proper steps to protect yourself.
Call to Action
Leaving California and worried about post-move taxation or FTB audits?
Schedule a consultation with Anshul Goyal, CPA EA FCA, a U.S.-licensed CPA and IRS Enrolled Agent. He helps high-net-worth individuals and business owners plan legal exits, protect their income, and stay compliant.
📅 Book your appointment here
FAQs – California Exit Tax
Q1: Is there an actual exit tax in California?
No. But the state can still tax income sourced to your California residency or activities, even after you move.
Q2: Can California tax stock options I receive after I move?
Yes—if the options were earned while you were a resident, a portion may be taxable.
Q3: What if I move mid-year?
File Form 540NR as a part-year resident and allocate income correctly between California and your new state.
Q4: Can the FTB audit me after I leave?
Yes. The FTB has a lookback period of several years and aggressively audits former residents.
Q5: How can I avoid California tax after leaving?
Sever all residency and business ties, file correctly, and track source of income—especially stock-based comp and gains.
About Our CPA
Anshul Goyal, CPA EA FCA is a U.S.-licensed Certified Public Accountant, IRS Enrolled Agent, and Fellow Chartered Accountant with 15+ years of experience. He helps individuals and business owners manage complex tax issues including California exit planning, multi-state income sourcing, and residency audits.
Disclaimer
This blog is for informational purposes only and does not constitute legal or tax advice. The California Franchise Tax Board applies nuanced residency and sourcing rules. Always consult a licensed CPA for proper exit tax planning and representation.