CA to TX Mid-Vest: The Trailing California Nexus Problem
A Google PM moves from San Francisco to Austin in the middle of a vest cycle. California still wants its share of the RSU income. Here is how the workday allocation worked.
A product manager at Google relocated from San Francisco to Austin in July 2024 for family reasons. His unvested RSU balance at move was 2,800 shares across three grants. He assumed that once he became a Texas resident, his RSU vests after July 2024 would be entirely Texas-sourced, meaning zero state tax. His December 2024 W-2 surprised him: Google had allocated 58% of his Q3 RSU vest to California wages. He asked us to figure out whether Google was right.
Situation
His grants:
- Grant A: 2,400 shares granted March 2022, vesting quarterly over 4 years. Balance at move: 900 shares, all time-vested workdays split between CA and TX.
- Grant B: 1,600 shares granted March 2023. Balance at move: 1,050 shares.
- Grant C: 1,200 shares granted March 2024. Balance at move: 850 shares.
Residency dates: California resident January 1, 2022 to July 14, 2024. Texas resident July 15, 2024 forward. He sold his SF condo, registered his car in Texas, changed his driver’s license, and ended his California Kaiser plan. He was clearly a Texas resident by the FTB’s standard of “closer connection” under FTB Publication 1031.
California’s rule for sourcing RSU income is in FTB Publication 1004, Stock Option Guidelines. The state uses a workday allocation formula: the portion of RSU income taxable by California equals the RSU income multiplied by (California workdays between grant and vest) divided by (total workdays between grant and vest).
For his September 2024 vest:
- Grant A, September 2024 tranche: granted March 2022, vested September 2024. Total workdays between grant and vest: ~660. California workdays (Jan 2022 through July 14, 2024): ~620. Allocation: 620/660 = 94%.
- Grant B, September 2024 tranche: granted March 2023, vested September 2024. Total workdays: ~385. California workdays: ~345. Allocation: 345/385 = 90%.
- Grant C, September 2024 tranche: granted March 2024, vested September 2024. Total workdays: ~130. California workdays: ~90. Allocation: 90/130 = 69%.
Weighted across his vest that quarter, the blended California allocation came out to around 87%, not 58%. Google’s 58% appears to have applied a simpler methodology: residency days rather than workdays between grant and vest. That error cost him clarity but actually under-allocated to California, meaning he owed more California tax than Google withheld.
What we modeled
Three questions:
- Was the trailing California tax legitimate, or could he dispute it?
- Did he owe additional California tax at filing due to Google’s under-allocation?
- Should he make estimated California payments for future vests from pre-move grants?
Answer to #1: legitimate. FTB Publication 1004 is clear on workday allocation and has been upheld by the California Court of Appeal in multiple cases. California’s “source” test looks at where the service giving rise to the compensation was performed, not where you live when you receive it. IRC §61 treats RSU income as wages for services, so the sourcing follows the service location.
Answer to #2: yes. Google’s 58% allocation was too low. He owed California approximately $13,800 of additional tax on the 2024 vest when calculated correctly.
Answer to #3: yes, through 2025 and into 2026 for the remaining pre-move grant tranches. By early 2027, Grant A will be fully vested. Grant B and C continue longer, but the California allocation percentage will drop each vest as Texas workdays accumulate.
| Tax year | Estimated remaining CA-sourced RSU income | Estimated CA tax (9.3-11.3% bracket) |
|---|---|---|
| 2025 | $245,000 | $24,300 |
| 2026 | $118,000 | $11,200 |
| 2027 | $48,000 | $4,400 |
What he did
He filed California Form 540NR (non-resident) for 2024 showing 87% allocation and paid the additional $13,800. He also filed a letter with his California return explaining the methodology difference with Google’s W-2 and referencing FTB Publication 1004. This is not a protest, it is just documentation, and it reduces the chance of a mismatch notice from the FTB later.
For 2025 and forward, he set up quarterly California estimated payments using Form 540-ES. California’s estimated tax weighting is 30/40/0/30, which required a bigger Q1 payment than the simple ratable approach federal uses. He paid $7,300 in Q1, $9,700 in Q2, and $7,300 in Q4.
He also coordinated with his Google HR to update his internal “work location” setting, though for multi-year-granted RSUs this only affects future tax withholding, not allocation. The workday formula already locks in the pre-move California portion.
What he wishes he had done differently
He signed his Texas lease on July 1 but did not actually move until July 29. Between July 1 and July 29, he was working remotely from San Francisco while the Texas apartment sat empty. California could argue those 20 workdays were California-sourced, not Texas, which moved his allocation fractions slightly higher toward California. Had he flown to Austin on July 1 and worked from there, his allocation would have been cleaner.
He also kept a California bank account open until November 2024, paid California property tax on a storage unit, and continued an LLC registration in California. None of these alone would shift residency, but collectively they gave the FTB a contact list if it ever wanted to challenge his residency date. He closed the bank account and dissolved the LLC in December. For future readers, moving should be decisive: new state driver’s license within 30 days, mail forwarded, old-state financial ties severed.
Third regret: he did not run the sourcing math before accepting the transfer. Had he understood that his California tax exposure would continue for two to three years on pre-move grants, he would have asked Google for a one-time cash relocation bonus of $40k sized to offset the trailing California tax. Google’s HR was generous with relocation, but he only asked for moving costs, not tax equalization.
Frequently asked
Does California tax my RSUs if I move before vest?
California taxes the portion of RSU income attributable to California workdays between grant and vest, even if you are a non-resident when the RSUs vest. See FTB Publication 1004.
How does the workday allocation actually get calculated?
California workdays between grant and vest divided by total workdays between grant and vest, multiplied by the RSU income at vest. Holidays, weekends, and vacation days generally do not count on either side. Sick days may or may not, depending on contract structure.
What about stock options?
Same framework, but the measurement period is grant to exercise (for NSOs) or grant to vest (for ISOs, with additional complexity if you leave California between vest and exercise). FTB Publication 1004 walks through each equity type.
Can I avoid California trailing tax by moving before the grant date?
Yes. If you are never a California resident during the grant-to-vest period, California has no claim. The trailing nexus only applies when you performed service in California during the measurement period.
Does Texas have any equity-comp state tax?
No. Texas does not have a state income tax. Washington, Nevada, Florida, Tennessee, and South Dakota also do not.
Composite scenario drawn from common patterns in our advisor network's casework. Names, companies, and exact numbers are illustrative. Not tax, legal, or investment advice.