Avoid state taxes by moving to Nevada?

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The [tag]Wall Street Journal[/tag] had an interesting article today about moving to Nevada to [tag]avoid taxes[/tag].

The story mentions David Duffield, an entrepreneur who left California to build a $50 million estate in Nevada. He was hoping to save millions in taxes.

Duffield made it big with PeopleSoft. So big that his share of the company was eventually worth $150 million. He followed his acountants’ advice and set up a Nevada investment company funded with his PeopleSoft stock, although they did warn him that California could come after him for attempting to avoid state taxes.

California followed him! After a series of investment transactions that ultimately ended with Duffield personally purchasing the property he tried unsuccessfully to sell to outside parties, California accused him of attempting to evade taxes and sent him a bill for $7.2 million. He’s been appealing that bill ever since, but it has now grown to $19 million with interest and penalties.

They say that tax disputes with Nevada transplants make up 20% of California’s tax disputes. It seems that they are going after people who claim to live in Nevada, but appear to still have primary residency in California. (Yes, that issue can get complicated.)