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February 3, 2023
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I did a little independent consulting work for a company in CA, but I reside in TX. Does this count as making $ in another state? I received a 1099-NEC.

  • February 3, 2023
  • 4 replies
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Best answer by Hal_Al

Yes. 

If all your work is actually (physically) performed in your state of residency and you never physically work in any other state, then the answer is usually no.  But, currently, the only exception to that is California.  Due to a 2019 court ruling in CA, if you are a sole proprietor and you provide services to a client located in CA, that income is taxable by CA - even if you never set foot in California.

4 replies

Hal_Al
Hal_AlAnswer
Employee
February 3, 2023

Yes. 

If all your work is actually (physically) performed in your state of residency and you never physically work in any other state, then the answer is usually no.  But, currently, the only exception to that is California.  Due to a 2019 court ruling in CA, if you are a sole proprietor and you provide services to a client located in CA, that income is taxable by CA - even if you never set foot in California.

February 3, 2023

No.  You would only need to report income on a CA return if you performed services in CA for which you were compensated.  When you perform services outside of CA, such as in Texas, for a CA company, CA does not tax that income.  You would pay only federal tax on that income as Texas does not have an income tax.  

 

If the consulting work you did was performed in CA, then you should select "yes" when responding to the question about earning money in another state.  

 

@floragon

 

After additional review, we need to modify the prior response.  There are situations where a non-resident would not pay CA tax; however, given that you are an independent contractor performing services for a CA based company, the compensation you received would be considered CA source income.  Thus, you need to file a CA non-resident return.

 

[Edited 02/03/23 | 3:43pm PST]

 

@floragon

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Employee
February 3, 2023

California's rules are a little unusual.  If you are self-employed and you perform work for a client located in California, that is considered California source income, even if you never set foot in California.  You would file a California non-resident return to report and pay tax only on the California portion of your income.  Note that when you prepare the California return, you will have to manually enter the source of your income, Turbotax can't do it for you. 

Rick19744
Employee
February 3, 2023

@Hal_Al is correct.

There are a couple of high profile (from the standpoint of a taxing position in California's favor) cases and you fall within the grasp of California's FTB.

Because California is very aggressive, you will eventually receive notification from the FTB; you received a form 1099-NEC.

Also keep in mind, that if you never file a California tax return, the statute of limitations never begins to toll. 

That is a big risk and leaves the door open for penalties and interest.

 

 

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.