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June 11, 2021
Question

Which state taxes apply!? Military spouse. Home of record is TX. Currently living in VA on husband’s orders. Independent contractor with an LLC doing work for a NY-based company.

  • June 11, 2021
  • 1 reply
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I am a military spouse and our home of record is in Texas. We are currently stationed in Virginia. I qualify under the Military Spouse Residency Relief Act (MSRRA). I am an independent contractor and recently set up a single-member TX LLC. I always provide services exclusively remotely from home and have recently contracted with a NY-based firm. I will not ever physically be or work in NY to provide the consulting services. I have no VA clients and do not offer any services to VA clients.

 

I know that NY state imposes income taxes based on the location of the employer, not the employee. Trying to determine: (1) does this employer-based taxation apply to independent contractors? (2) We always file tax returns but don’t need to in VA as a result of the MSRRA application. Will I need to file state returns in NY now since I have a NY client (and therefore NY revenue), or am I good to just deal with TX because both VA and NY have recognized the MSRRA? (3) Should the NY client be providing me with a 1099-misc for fees paid? Thank you in advance for any insight to this murky situation! 

1 reply

Employee
June 21, 2021

Since your independent contractor work was not carried on in New York State, it is not NY-source income and therefore not taxable to you as a non-resident of NY.

https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/pit/ny_source_income_nonresident.htm

 

As a military spouse living in VA on your husband's military orders, the income you earn from self-employment is exempt from Virginia income tax if the primary source of income from your business is derived from your performance of a service.  If your business employs others and/or utilizes significant capital (equipment, vehicles, etc.), then the income you derive from the business will not be exempt from Virginia income tax. 

https://www.tax.virginia.gov/military-spouses-residency-relief-act-faqs

**Answers are correct to the best of my ability but do not constitute tax or legal advice.