Can an independent-contractor agreement qualify as an employment-related contract for California's 546-consecutive-day residency safe harbor?

Plain-English summary

California Chief Counsel Ruling 2000-01 concluded that an independent-contractor relationship may qualify as an “employment-related contract” under Revenue and Taxation Code section 17014(d).

That provision described a safe harbor for a California-domiciled individual absent from the state for at least 546 consecutive days under an employment-related contract.

FTB read the phrase as broader than a traditional employer-employee contract and capable of covering self-employed independent-contractor services.

The ruling did not decide whether the taxpayer was actually a California resident, whether the agreement was truly an independent-contractor agreement, or whether the other safe-harbor requirements were met.

The submitted arrangement

The taxpayer was represented as domiciled and resident in California.

Under an agreement described as an “Independent Contractor Agreement,” the taxpayer would perform services connected with motion-picture production outside California.

The request represented that the taxpayer would meet every requirement in section 17014(d) except the disputed question: whether an absence for self-employed independent-contractor work could be employment-related.

FTB accepted those representations solely for purposes of answering that legal-interpretation question.

The 546-day statutory language

The ruling quoted section 17014(d) as applying to a California-domiciled individual absent from the state for an uninterrupted period of at least 546 consecutive days under an employment-related contract.

The question was whether “employment-related contract” meant only a traditional employer-employee agreement.

FTB observed that the Legislature used a broader phrase than “employment contract.”

Although the ruling identified no specific legislative history for the phrase, FTB found it reasonable to include work performed in the nature of an independent contractor.

What FTB did not decide

FTB expressly declined to rule on the taxpayer's residency status because residency was factual and was an issue on which FTB would not issue a ruling, citing FTB Notice 89-277.

FTB also did not determine the actual legal nature of the agreement between the redacted parties.

The ruling therefore did not establish that this taxpayer qualified for the safe harbor. It established only that independent-contractor status did not automatically prevent the agreement from being employment-related.

Holding

For this Chief Counsel Ruling, an independent-contractor relationship could be considered an employment-related contract under Revenue and Taxation Code section 17014(d).

The conclusion was taxpayer-specific and rested on the submitted representations.

What this means for you

Independent contractors

A self-employed arrangement was not categorically excluded from the statutory phrase in this ruling. The contract and all other safe-harbor conditions still mattered.

People leaving California for long projects

A planned absence of 546 days alone did not establish the result. The ruling addressed only the employment-related-contract element, not actual residency or full safe-harbor eligibility.

Tax preparers

Keep the signed agreement, scope of services, day-count records, travel records, housing and domicile evidence, and documents supporting every other claimed safe-harbor requirement.

Common questions

Q: Did FTB say every independent contractor qualifies for the 546-day safe harbor?

A: No. It said an independent-contractor relationship may be an employment-related contract; it did not decide the other requirements.

Q: Did FTB decide that the taxpayer was no longer a California resident?

A: No. The ruling expressly declined to determine residency.

Q: Did FTB verify that the agreement was really an independent-contractor agreement?

A: No. It accepted the requester's representation about the contract's nature only for purposes of the ruling.

Q: Why did FTB include independent contractors?

A: It viewed “employment-related contract” as broader than a traditional employer-employee contract.

Q: How long did the quoted safe harbor require the individual to be absent?

A: An uninterrupted period of at least 546 consecutive days, subject to the statute's other requirements.

Key source language

• Scope of the ruling: “We are only ruling on the proper interpretation ... to be given to the term ‘employment-related contract’ as contained in the first sentence of Revenue and Taxation Code section 17014, subdivision (d).”
• Interpretation: “the term ‘employment-related contract’ would include employment in the nature of an independent contractor.”
• Holding: “an independent contractor relationship may be considered an ‘employment-related contract’ under Revenue and Taxation Code section 17014, subdivision (d).”

Citations and references

• Cal. Rev. & Tax. Code §§ 17014(d) and 21012(a)(1)
• FTB Notice 89-277

Source

• Landing page: Chief Counsel Ruling index
• Official ruling: Chief Counsel Ruling 2000-01

Original ruling text

STATE OF CALIFORNIA
KATHLEEN CONNELL
FRANCHISE TAX BOARD
Chair
Legal Branch
DEAN ANDAL
PO Box 1720
Member
Rancho Cordova CA 95741-1720
(916) 845-3346 Fax (916) 845-3648
B. TIMOTHY GAGE
Member

June 6, 2000
Chief Counsel Ruling
2000-01

RE: ****

Dear ****:

This is in response to your letter dated ***, requesting a Chief Counsel Ruling regarding the application of Revenue and Taxation Code section 17014, subdivision (d) to the above-referenced taxpayer.

As stated below, please note that we are not ruling on whether, under the facts as presented, ***** is or is not a resident of California. We are only ruling on the proper interpretation, in the context of your specific request, to be given to the term "employment-related contract" as contained in the first sentence of Revenue and Taxation Code section 17014, subdivision (d).

Under the facts as presented, ** is a resident of and domiciled in the State of California. Pursuant to an "Independent Contractor Agreement" between ******** will perform services in conjunction with the production of motion pictures to be filmed in ***.

You have stated that:

"If the taxpayer were an employee of **** rather than a self-employed individual rendering services in an independent contractor capacity, he would qualify to be considered 'outside the state for other than a temporary or transitory purpose,' since he is absent pursuant to an employment-related contract."

Thus, you have represented that ** would meet all requirements contained in Revenue and Taxation Code section 17014, subdivision (d) except for the question which is the subject of your request, i.e., whether the safe harbor contained in Revenue and Taxation Code section 17014, subdivision (d) would apply if **** "employment-related absence" resulted from services provided in a self-employed independent contractor capacity.

Page 2

June 6, 2000
Page 2

Revenue and Taxation Code section 17014, subdivision (d), first sentence, provides:

For any taxable year beginning on or after January 1, 1994, any individual domiciled in this state who is absent from the state for an uninterrupted period of at least 546 consecutive days under an employment-related contract shall be considered outside this state for other than a temporary or transitory purpose. (Emphasis added)

By the use of the term "employment-related contract," the statute contemplates something in addition to the traditional employment contract (employer- employee) as the statutory language is more expansive in scope. While there is no specific history on this language, a reasonable reading of this provision leads to the conclusion that the term "employment-related contract" would include employment in the nature of an independent contractor.

Thus, for purposes of this Chief Counsel Ruling, we conclude an independent contractor relationship may be considered an "employment-related contract" under Revenue and Taxation Code section 17014, subdivision (d).

We are not ruling on *** residency status, as such a determination is factual in nature and is a question upon which we will not issue a ruling. (See FTB Notice 89-277). Also, we are not making a conclusion regarding the nature of the agreement between ******, but are accepting your representation of the Contract's nature for purposes of this Ruling only.

Please be advised that the tax consequences expressed in this Chief Counsel Ruling are applicable only to the named taxpayer and are based upon and limited to the facts you have submitted. In the event of a change in relevant legislation, or judicial or administrative case law, a change in federal interpretation of federal law in cases where our opinion is based upon such an interpretation, or a change in the material facts or circumstances relating to your request upon which this opinion is based, this opinion may no longer be applicable. It is your responsibility to be aware of these changes should they occur. This letter is a legal ruling by the Franchise Tax Board Chief Counsel within the meaning of Revenue and Taxation Code section 21012(a)(1). Please attach a copy of this letter and your request to the back of the appropriate return(s) (if any) when filed or any notices or inquiries which might be issued.

Very truly yours,

Terry Collins
Supervising Tax Counsel