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Ask HN: My company is being acquired. Should I move from CA to NV prior signing?

6 points by throwaway010718 ↗ HN
I just received a ~$1Million offer to purchase the IP of my tech company. My company is a Delaware C-Corp operating in California. The acquiring company is in Nevada and I'd relocate immediately so I can work as a part time consultant.

I am currently a CA resident and it seems unlikely that I could avoid paying CA income taxes on the proceeds just by getting a Nevada drivers license and renting an apartment prior to signing the agreement. But given the acquiring company is in NV and I do intend to move maybe it is a legitimate reason to not pay California income taxes. Any thoughts or general advice ? I don't have an accountant so any Bay Area CPA referrals are appreciated.

10 comments

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ryduh
I think you'd need to spend more than 50% of the year living in NV to not have to pay CA taxes so you might be stuck paying CA income taxes on it anyway.
muzani
Actually I think it's more like less than 50% of the year in CA. I'm not sure about US state laws, but most international laws have such that people can completely avoid income taxes if they bounce around enough countries.
patio11
You urgently need to speak to an accountant, ideally one who works frequently with (specifically) California tech companies, and you should very carefully follow their advice.
anoncoward111
Agreed that you should speak to multiple accountants ASAP.

If you have made 6 months of W2 income in California, you are a tax resident there for ALL transactions occurring in 2018. Simply getting a driver's license in NV in August or something doesn't negate this.

If you haven't received any W2 income in California, then hm.... I think you could perform the transaction in Nevada.

Also, if you have bank interest or stock income in california, this is also impacting your tax residency.

Good luck and congrats!

gnicholas
If they're acquiring the IP of your tech company, then it's possible that you won't personally have income until next year (when you liquidate your company). If you move this year then you could have no ties to CA during the relevant year.

You should do things like:

Give up your home here and get a home in NV. Give up your drivers license here and get one in NV. Change your vehicle registration Change your voting registration Track the number of days you spend in CA next year, and try to minimize it.

As others have said, the FTB (California Franchise Tax Board) may still come after you. I don't think this is terribly likely for a sum this size (no offense!). I know of a case — from back when I was a tax lawyer — where the FTB went after taxpayers who moved out of CA before having a huge (probably tens of millions) liquidity event.

At the time, I asked the partner handling the case how the FTB knew about this guy since the transaction happened after he left CA. IIRC, the answer was that they may track large published transactions and see if there are ties to CA. But since your transaction is much smaller, there's a good chance you wouldn't end up on the FTB's radar.

But even in the big case I described, the taxpayer won — and even got his attorney's fees covered by the govt because the FTB had been been overly aggressive in going after him. The lawyer in that case was Roburt Waldow [1]. It looks like that case is still the first one on his list of experience — probably because it's notable to get attorney's fees awarded. If you contact him, he'd probably give you his two cents free of charge (especially if you tell him you heard about him from his former colleague Nick).

1: https://www.sheppardmullin.com/rwaldow#Experience

NOTE: I am no longer an active attorney with the CA Bar, and this is not legal advice :)

marklyon
You’ve benefitted from the resources and business environment of California. They looked out for you when you were getting started. Why avoid paying your fair share now that you’re successful?
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throwaway010718
By that argument I should be paying the state of Arizona a portion of this windfall because that is where it started. But as soon as it became profitable I moved to CA. I paid CA every year on our profits, payroll taxes, and sales taxes. It was mutually beneficial and CA collected plenty of taxes.

I'd also agree with you if I were moving to NV to avoid taxes. But that is not the reason as I explained in my post.

rajacombinator
You should definitely consult with a expert in this issue and do everything possible to minimize your taxes.