The State You Left May Still Own You

The short version

A U.S. digital nomad can spend most of the year in South America and still have a state residency problem back home. Federal tax rules ask whether the taxpayer qualifies for the Foreign Earned Income Exclusion, reports worldwide income, and files the right federal forms. State tax agencies ask a different question: did the taxpayer actually abandon the old permanent home, or only travel for a long time?

That difference matters. A passport full of stamps does not automatically erase a driver license, a home, a spouse, a doctor, a bank account, a voter registration, or an apartment in the old state. If the facts still point home, the state may still treat the taxpayer as a resident.

What the law actually says

State residency is not one national rule. Each state writes its own framework, and the words vary. But the recurring concepts are domicile, statutory residency, permanent place of abode, day count, and evidence of intent.

Domicile usually means the taxpayer’s permanent home, the place the taxpayer intends to return to when away. New York says a person can have only one domicile, and a New York domicile does not change until the taxpayer can show abandonment of the New York domicile and establishment of a new domicile outside New York State. Connecticut uses a similar permanent-home concept and says domicile does not change until the taxpayer moves to a new location and definitely intends to make that location the permanent home. Connecticut expressly says this also applies if the taxpayer is working in a foreign country.

California frames residency as a facts-and-circumstances question. California Franchise Tax Board Publication 1031 says residency is primarily determined by examining all the circumstances of the taxpayer’s situation. It also says the FTB will not issue written opinions on whether a person is a California resident for a particular period because residency is a question of fact.

New York adds a statutory-residency path. New York says a person is a resident if domiciled in New York, or if the person maintains a permanent place of abode in New York for substantially all of the taxable year and spends 184 days or more in New York during the tax year. Virginia uses a different day-count phrase: actual residents include individuals physically present in Virginia or maintaining a place of abode there for more than 183 days during the taxable year. Connecticut also uses a more-than-183-day test for nondomiciliaries who maintain a permanent place of abode in Connecticut for the entire taxable year.

That is why “I was abroad” is not enough. The state asks what the evidence shows.

How it works in practice

Assume a California taxpayer leaves for Buenos Aires, Medellin, Sao Paulo, and Montevideo. She keeps a California driver license, stores furniture in Los Angeles, uses a family address for mail, keeps her California doctor and accountant, has brokerage statements mailed to California, and returns to the same California room during U.S. visits. She also opens a new bank account abroad, rents apartments in South America, and works remotely.

For federal tax, the questions may include foreign earned income, tax home, physical presence, self-employment tax, digital asset reporting, FBAR, and Form 8938. For state tax, the first question is more basic: where is her permanent life anchored?

If the answer is still California, the South America travel log may not solve the state problem. If the answer is now somewhere else, the file needs to show the exit, not just the travel.

The same logic applies to a New York taxpayer who keeps a New York apartment while traveling abroad. New York’s statutory-residency rule is not only about domicile. A permanent place of abode and enough New York days can create a separate path to resident treatment. A Virginia taxpayer working overseas may still be a Virginia domiciliary resident unless the facts show abandonment of Virginia domicile and establishment of another legal domicile. A Connecticut taxpayer working abroad may still have Connecticut domicile unless the permanent-home evidence changed.

The practical point is not that every state notice is right. It is that the taxpayer needs an exit file before the notice arrives.

The numbers

These are not national safe harbors. They are examples of how different the state rules can be.

State or source	Figure or rule	Why it matters	Source
California	At least 546 consecutive days outside California under an employment-related contract	A limited safe harbor may help certain California domiciliaries, but it is not a blanket rule for every remote worker or self-employed nomad	California FTB Publication 1031
California	More than $200,000 of intangible income can break the safe harbor	The safe harbor has limits, and tax-avoidance purpose can also defeat it	California FTB Publication 1031
California	Return visits up to 45 total days in a covered taxable year are treated as temporary for the safe harbor	The rule has its own visit-counting detail, separate from federal FEIE day counting	California FTB Publication 1031
New York	184 days or more, plus a permanent place of abode maintained for substantially all of the taxable year	Statutory residency can apply even when domicile is disputed separately	New York resident definitions
Virginia	More than 183 days with physical presence or a maintained place of abode	Virginia actual residency uses a different threshold phrase than New York	Virginia Tax residency status
Connecticut	More than 183 days, plus a permanent place of abode maintained for the entire taxable year	Connecticut has both domicile and statutory-style residency paths	Connecticut DRS resident income tax information
Tax Foundation 2026 data page	41 states tax wage and salary income; eight states levy no individual income tax at all	No-income-tax states can change the planning math, but they do not prove the old domicile was abandoned	Tax Foundation

The five state-tax mistakes digital nomads make

1. Treating physical absence as domicile proof

Physical absence matters, but it is not the whole test. A taxpayer can be gone for a long time and still have old-state evidence everywhere. Driver license, voter registration, principal residence, family location, professional relationships, bank-account location, and social ties can all matter.

California Publication 1031 captures the problem well. It says the underlying theory of residency is closest connections. It also warns that the strength of ties matters, not just the number of ties, and that no single factor is determinative.

That is why a state exit plan should be evidence-driven. Do not rely on an intention sentence. Build the file that proves the intention.

2. Assuming the federal FEIE day count solves the state problem

The Foreign Earned Income Exclusion has its own federal tests. The state rules discussed here are different. A taxpayer might satisfy a federal physical-presence position and still have a state domicile dispute. A taxpayer might miss federal FEIE but still successfully break old-state domicile. The questions overlap in evidence, but they are not the same legal test.

This is one of the most common nomad mistakes. The taxpayer focuses on 330 full days abroad, then ignores the old apartment, old license, old spouse location, old voter registration, and old bank records.

3. Reading California’s 546-day safe harbor too broadly

California’s safe harbor is useful, but it is narrower than many readers expect. It is written for certain California domiciliaries outside California under employment-related contracts for an uninterrupted period of at least 546 consecutive days. It also has limits, including more than $200,000 of intangible income in a taxable year while the contract is in effect, and absence whose principal purpose is California personal income tax avoidance.

That is not the average crypto consultant, founder, or freelancer bouncing among South American cities. A W-2 employee sent abroad under a formal foreign assignment may have a different file than a self-employed digital nomad who decides to work from Colombia for six months and Argentina for another six.

The phrase to remember is limited safe harbor, not universal exit pass.

4. Keeping a New York apartment and calling it harmless

New York’s resident definitions page says a resident can be someone domiciled in New York. It also says a resident can be someone who is not domiciled in New York but maintains a permanent place of abode in New York for substantially all of the taxable year and spends 184 days or more in New York during the year.

The permanent-place-of-abode concept is broader than “I slept there every night.” New York guidance generally looks to a maintained residence suitable for year-round use, including a residence the spouse owns or leases. The state can ask whether the taxpayer had a real, available New York home base, not just whether the taxpayer preferred to call it storage.

For a nomad, the empty apartment may speak louder than the full passport.

5. Moving to a no-income-tax state without proving the old exit

Some states do not tax wages and salaries through a broad individual income tax. Tax Foundation’s 2026 data page says 41 states tax wage and salary income and classifies eight states, including New Hampshire, as levying no individual income tax at all. It also notes that Washington taxes capital gains income but not wages or salaries. New Hampshire’s prior interest and dividends tax was repealed effective January 1, 2025.

That context matters, but it does not prove domicile. A taxpayer who claims Nevada, Florida, Texas, South Dakota, or New Hampshire as the new home still needs to prove the old home was abandoned and the new home was established. A mailbox, a registration change, or a friend’s address may help the story, but it does not carry the story alone.

The old state will usually care less about the marketing label of the new state and more about the facts that show where the taxpayer’s permanent life moved.

What belongs in the state exit file

A state exit file should be built while the move is fresh. It should not wait until the first notice arrives. Useful records may include:

a written domicile-change memo explaining the old domicile, the new domicile, and the date the facts changed;
sale, lease termination, or rental-conversion records for the old residence;
lease, deed, long-term lodging, or residence evidence for the new location;
driver license, voter registration, vehicle registration, and insurance changes;
bank, brokerage, payroll, and tax-mail address changes;
medical, dental, accounting, legal, and professional-service changes;
spouse, partner, and minor-child location records;
school records for children, if applicable;
moving receipts, storage contracts, and inventory;
calendar, passport, boarding-pass, and flight records;
foreign visa, residence permit, tax ID, lease, or local registration records;
employer remote-work authorization or client contracts showing where work was performed;
a U.S. visit log showing that return trips were temporary.

The file should answer two questions at the same time. What did the taxpayer abandon? What did the taxpayer establish instead?

If the notice already arrived

If a state notice already arrived, do not answer it with slogans. Reconstruct the file first. Pull the return, travel log, calendar, leases, licenses, voter records, bank records, brokerage address history, employer records, family-location evidence, and state filing positions. Then separate the issues:

Is the state asserting domicile?
Is it asserting statutory residency?
Is it asking about source income?
Is it challenging nonresident withholding or allocation?
Is it relying on an address mismatch, information return, property record, or prior filing position?

Those are different fights. A domicile response is not the same as a wage-allocation response. A permanent-place-of-abode issue is not the same as a simple address update. A state may be wrong, but the response should be documentary, not emotional.

What this means for you

Before leaving for South America, treat state residency as its own workstream. Do not assume FEIE solves it. Do not assume a digital nomad visa solves it. Do not assume a no-income-tax state solves it. Build the file before the move, update it during the year, and keep the records that show where your permanent home actually changed.

For a digital asset taxpayer, this matters even more. Crypto records, exchanges, bank rails, Form 1099s, and brokerage addresses can leave a trail that points back to the old state. The state file also has to match the federal digital asset file, including whether the return treats a transaction as ordinary income or capital gain. For that federal side, see Ordinary vs Capital: When Each Applies to Digital Assets and Notice 2014-21 in 2026: Why It Still Controls Digital Asset Tax. The strongest state position is the one where the documents, the calendar, and the return all tell the same story.

How Sheepdog Tax can help

I am Noah Green, a CPA and Certified Fraud Examiner, and Sheepdog Tax is a veteran-owned practice. I help U.S. taxpayers with digital assets, foreign work, and cross-border filing facts build the tax file before the return locks in the position. For a South America move, that includes reviewing state domicile evidence, federal foreign-income positions, digital asset reporting, FBAR and Form 8938 exposure, and the records needed if a state notice arrives later. To request a South America digital nomad tax diagnostic, reach me at noah@sheepdogtax.com.

Sources (primary authority first, then secondary commentary)

California Franchise Tax Board, Publication 1031, Guidelines for Determining Resident Status, 2025. https://www.ftb.ca.gov/forms/2025/2025-1031-publication.pdf
New York State Department of Taxation and Finance, Income tax definitions, including domicile, permanent place of abode, resident, nonresident, and part-year resident definitions. https://www.tax.ny.gov/pit/file/pit_definitions.htm
New York State Department of Taxation and Finance, Permanent Place of Abode, TB-IT-690. https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/pit/permanent_place_of_abode.htm
Virginia Tax, Residency Status, including actual residents, domiciliary residents, and individuals living abroad. https://www.tax.virginia.gov/residency-status
Connecticut Department of Revenue Services, Resident Income Tax Information, including domicile, permanent place of abode, resident, part-year resident, nonresident, and foreign-country exceptions. https://portal.ct.gov/drs/individuals/resident-income-tax/tax-information
Tax Foundation, State Individual Income Tax Rates and Brackets, 2026. https://taxfoundation.org/data/all/state/state-income-tax-rates-2026/
Tax Foundation, New Hampshire Tax Rates and Rankings, including the repeal of the prior interest and dividends tax effective January 1, 2025. https://taxfoundation.org/location/new-hampshire/
IRS, Foreign Earned Income Exclusion, physical presence test. https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test
IRS, Digital Assets. https://www.irs.gov/filing/digital-assets
IRS, Report of Foreign Bank and Financial Accounts, FBAR threshold and filing overview. https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar
IRS, About Form 8938, Statement of Specified Foreign Financial Assets. https://www.irs.gov/forms-pubs/about-form-8938

Prepared by Noah Green, CPA, CFE.