Question

The online help for "Multiple States - Where to File" is incorrect for Nonresident for "Received income from sources (... business ...)". For wages, it is where services

Forum|Forum|6 years ago
April 9, 2020
3 replies
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For wages, it is where services are performed. The online help is unclear and may have people think that they need to file a nonresident return when working as an employee out-of-state from where the company is located. For California, tax on wages is only owed for nonresidents for services performed in the state. For contractors, tax on income is also owed for nonresidents for services provided to customers in the state (typically sales or support).

TurboTax Online

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richardfalkmytaxAuthor

Here is a better way to word this from the publication for California:

https://www.ftb.ca.gov/forms/2019/2019-1031-publication.pdf

Nonresidents of California are taxed only on income from California sources.

Wages and salaries have a source where the services are performed. Neither the location of the employer, where the payment is issued, nor your location when you receive payment affect the source of this income.

A nonresident’s income from California sources includes income from a business, trade, or profession carried
on in California. If the nonresident’s business, trade, or profession is carried on both within and outside California, the income sourced to California may be based only on the business conducted within California, or may be determined by using the apportionment formula for corporations engaged in multistate businesses.

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richardfalkmytaxAuthor

Here is the part about out-of-state contractors needing to pay tax on income if the purchaser of the service receives the benefit of the service in California. This does not apply to wages to an employee described in the earlier post above as tax on those are only determined from where the services are performed.

A nonresident may have California sourced income or apportionable business income if receiving income from sales or services sourced to California. Such income includes:

Sales of services to the extent that the purchaser of the service receives the benefit of the service in California.

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richardfalkmytaxAuthor

The online help that should be improved is the following:

https://turbotax.intuit.com/tax-tips/state-taxes/multiple-states-where-to-file/L5NxnNH21

The underlined portion should be reworded as it could imply that employee wages from a company located in another state would be taxable, but that is not true unless the services were performed in that state (at least for California). The source rule for California is complex in that for employee wages it is where the services are performed (NOT where the business paying wages is located nor where the paycheck comes from) while for contractor (i.e. Schedule C) business income it is where the purchaser of the service receives the benefit that matters (so sales or support to a customer in California would be taxable).

You are a Nonresident of a state if you did not live in that state at any time during the tax year, but you did receive income from that state because you:

Worked in the state (but did not live there)
Received income from sources (rental property, business, etc.) within the state, or
Received income as a beneficiary of an estate or trust from sources within the state