Victor Roberts <xxx[at]lighting-research.com> wrote:

- quote -

Not to mention, it would be close to a wash for many states,
since they'd be giving credits for the amounts paid to the
non-resident state. (Not quite, low-tax state residents
wouldn't recoup all the taxes paid to the high-tax state
they visit, but mostly.)

Seth

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- quote -

I haven't spent time researching the issue, but my guess is
that if you apportion it based on the relative number of
work days (or maybe even calendar days) he was in
California, that would suffice.

Stu

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- quote -

The water gets a little muddy because we are talking about
two things as if they were the same -- taxability of
compensation for services performed in a state by a
nonresident, and the employer's responsibility to withhold
on payments for such services. Generally withholding is
required on "wages," and depending on the withholding
statutes of the states, some payments that are compensation
may not be wages subject to withholding. That doesn't mean
the income isn't taxable to the nonresident individual on a
source basis; it just means the employer won't be penalized
for failing to withhold on it. That may apply to the
bargain element of an NSO, for example. The fact that
withholding isn't required under the laws of a particular
state doesn't mean it isn't compensation and isn't taxable
there.

As the table in the JMT article shows, most states consider
the bargain element of an NSO to be compensation for
services sourced at the location where the services were
performed.

I certainly agree that this is an area where there is a lot
of ignorance on the part of taxpayers and employers, and a
general failure on the part of the states to educate them.
(Kind of like use tax collection from individual consumers,
as Victor has pointed out on numerous occasions <G> .)
Enforcement is pretty much catch-as-catch-can because there
is no automated program that gets the states the information
they need. So they do what they can.

But the LEGAL issues, i.e., what the states have the LEGAL
POWER to tax, are pretty well settled.

Katie in San Diego

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- quote -

This question remains unanswered. Does anyone else
have any input, or are all the CPAs keeping their heads
below the parapet in case they tip off the EDD to their
various schemes(!)

As Victor pointed out in another post, this must be one of
the most unenforced laws in the country. Big corporations
and large universities ignore it. Small businesses open
themselves up for administrative overhead, tax liability,
and possible audit responsibilities out of all proportion to
any gain for short-term work if they do the right thing. But
small businesses don't have the political clout to direct
the state's enforcement efforts so they "fly blind".

Despite Katie's assertion that the principle is all settled
law, there are still folks gnawing at the edges. Here's an
interesting catalog of uncertainties and idiotic rulings
including 1) A NJ landscaping company being required by NY
to prove that none of their employees worked in the state
(now go prove that for your company!), 2) a CA executive
being subpoenaed to give a deposition in a NY court and then
gets hit with a tax bill, and 3) NY's assertion that
non-wage income (including stock options) might be trigger
withholding and tax for a non-resident.

http://www.hodgsonruss.com/files/1_2...ust2003jmt.pdf

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- quote -

[snip]

Katie -- after the Use Tax for items purchased outside the
taxpayer's state of residence, this must be the most under
enforced tax law in the country.

I used to work for one of the largest companies in the US.
They had divisions in a number of states and foreign
countries. During my rather long tenure there I was sent to
"perform services" at their locations in at least 5 or 6
states, including California, and at non-company locations
in even more states. during all this time I never had state
income tax withheld by the company for any state other than
my state of residence.

While this company, and I'm sure others like it, took
advantage of every opportunity to maximize their profits, I
am not aware of any situation when they knowingly violated
the law.

I also worked for a large university. While employed by the
university I traveled to other states but had state income
tax withheld only for my state of residence.

So, these two examples create quite a conundrum. I don't
doubt your facts, but I also can't square those facts with
the behavior of my previous employers, neither of which was
a small operation. Note that I only know about employee tax
withholding. Both the company and the university may be
registered in California and every other state where they
provide services even if only via their business travelers.

Is it possible that there is some agreement we have not
discovered that exempts normal business travelers? Or the
type of services provided by business travelers is not
covered? Can it be possible that one of the 10 largest
companies in the US does not know about these tax laws?

Or, perhaps the states do not enforce these laws for
ordinary business travelers since they know that the
business community, especially the larger corporations in
the US, would rise up in arms against the huge amount of
added paperwork and demand some sort of reciprocal
agreements?

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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- quote -

Yes, we are a C corp, and we have in the past registered as
a foreign corporation so we know all about that $800. We
also know how aggressive they get if you forget to
"deregister" when you've finished.

But that was to perform services in Nevada for a CA client,
rather than actually performing them in CA. Correct me if
I'm wrong, but CA businesses are supposed to withhold 7%
from payments to out-of-state service providers who aren't
qualified to do business there, but most in my experience
have no idea this is required. We just try to do the right
thing in an evil world.

Now we'll need to be physically in CA, we have to deal with
the EDD as well. Employees will be there 3-5 days per week,
returning home on the weekend. Since I believe CA "de
minimus" allowance is < 5days over a whole year, there seems
no way of *not* dealing with this.

- quote -

Well, that's rather the point, isn't it? Exactly how does
one apportion "compensation for services performed in CA"
for someone on a salary? Typically, we'd bill the client
based on that person's time card, but the salary that the
employee receives isn't related in any way to to that time
card. So how does that get apportioned? We might even "fixed
bid". Does that make a difference?

I can guess at several mechanisms one might use, and clearly
I'm going to select that which is most favourable to
minimize CA tax liability. Why not?

One way would (for me) be to divide hours worked in CA into
my usual 80-hour week. Would that be acceptable? Would I
need timesheets covering all I do in those 80 hours in case
of audit?

Another would be to look at what the labor department thinks
someone ought to be paid in a particular role, but that's
likely to be far higher than salary received in NV for
equivalent work, and their figures are notoriously
inaccurate anyway.

Is there case law where someone has had an apportionment
scheme challenged and overturned?

- quote -

That's good to know. Our experience rate in NV makes
this insignificant. What about SDI?

- quote -

Sure. I'm enjoying the beach in my off-hours, rather than
sweltering in the desert. I no longer need my "hot weather
salary allowance". And as long as I'm being paid more than
minimum wage, who gives a fig? Or to put it more
specifically, has the EDD ever given a fig enough to
challenge such an arrangement in tax court and established a
precedent?

- quote -

Yes, well. It's all risk management after all. Clearly,
several major universities and a whole load of small to mid
size job shops have decided that simply ignoring the whole
deal is the optimum approach. Presumably CA know all about
this. Presumably, too, aggressively auditing firms that
*are* at least going through the motions of compliance is
not in CA's long term interest. I suppose I'm naive to
expect clarification in a public forum.

BTW, if selected for audit, are you supposed to high-tail it
over to Sacramento, or does the auditor (like the angel of
death) come and visit you? And if one is no longer
registered as a foreign corporation in CA when the audit
occurs, what mechanisms are there for getting a tax
adjustment for the expense of compliance?

- quote -

Nevada has changed quite a few things about its tax system
recently & invented a whole new business license requirement
with draconian penalties that small businesses always forget
about. I put it down to all the Californians moving here and
trying to make the place feel like home!

We even have our own "stealth" income tax now. Thank
you CA!!!

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Tony Cox wrote:
- quote -

There are reciprocal agreements among groups of contiguous
states whereby an individual who resides in one party state
and works in another pays tax only to the state of
residence. For example, Illinois has such agreements with
Michigan, Iowa, Wisconsin, and Kentucky. Several of the
Eastern seaboard states have reciprocal agreements. Neither
New York nor California has any reciprocal agreements with
other states.

- quote -

By sending your employees to perform services in California,
your business, however it is organized, becomes a California
taxpayer, subject to all applicable California tax laws.
Since you are an employee, I presume your business is a
corporation (S or C), since an LLC or partnership would not
compensate you as an employee. The corporation must
register with the California Secretary of State (qualify to
do business in the state) and will be subject to the
corporate franchise tax, including the $800 minimum. It
must also register as an employer with California and
withhold California individual income tax from its
employees' salaries to the extent they represent
compensation for services performed in California. In
addition, if the corporation is an S corporation, you will
also be subject to California personal income tax on your
distributive share of the corporation's income apportioned
and allocated to California, in addition to the portion of
your salary that relates to services performed in
California.

California is no different from any other state that imposes
comprehensive personal income taxes in this regard (apart
from the $800 minimum tax). If you are sending employees
into any other state to perform services, you must register
with that state as well.

For unemployment insurance purposes each employee is
reported to one, and only one, state, regardless of how many
states he or she works in during the year. If most of an
employee's services are performed in Nevada, the employee
should be reported to Nevada for unemployment insurance
purposes, not California.

As for reducing your own salary during the time you're
working in California ... does that smell right to you??

- quote -

You can think whatever you like about the justice of this
system, but it has been in place for a very, very long time
-- about as long as states have imposed individual income
taxes. The U.S. Supreme Court held many years ago that a
state may tax all of the income of a resident (Shaffer v.
Carter, 252 U.S. 37, 40 S. Ct. 221 (1920)) and may also tax
all property and business transactions within its borders
(Travis v. Yale & Towne Mfg. Co., 252 U.S. 650 (1920)). As
a result, any individual who has income from a source in
State A, while residing in State B, is subject to tax on
that income by both states. While the resulting multiple
taxation is generally mitigated by the allowance of credits
or reciprocal agreements between states, there does not
appear to be any constitutional requirement that such relief
be allowed. It is a matter of legislative grace. Of
course, since you are evidently a Nevada resident, the
decision to accept contracts requiring the presence of
yourself and your employees in any other state will result
in incremental tax liabilities for both your business
(assuming it is profitable) and the individuals involved.
You should be taking that into account in negotiating
contracts with out-of-state clients.

- quote -

If the returns come up for audit, they'll be audited.

As for SBE auditors, though, in my (admittedly limited)
experience they are easier to deal with than Nevada
auditors. Those guys are like junkyard dogs <G> !

Katie in San Diego

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Rich Carreiro wrote:
- quote -

Actually there are a number of ways for state tax
authorities to find out about "non-celebrities" performing
services in the state. None of the consultants who worked
for the accounting firm in Colorado were celebrities! I
suspect Colorado found out about their activities in an
audit of the client company. An audit of a major
corporation doing business in the state might well uncover
the activities of nonresident senior management (i.e.,
highly compensated individuals) working there. And you'd be
surprised how many state tax auditors monitor the business
sections of newspapers looking for information.

However, Rich is right in suggesting that for most
individuals working in other states, the states involved
have no automated system that will easily get them the
information. It's catch as catch can.

Katie in San Diego

Moderator:
It is also called 'playing the audit lottery' which is
IMRHO more unethical than comingling funds. If you earned
the money, you pay the taxes and sleep well at night.

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Katie wrote:

- quote -

One has to wonder just how workable such a system is! After
all, companies who send their employees out of state are
committing them unknowingly to filing non-resident income
taxes too -- a substantial administrative overhead and
potentially expensive, for states like CA for example where
total liability is assessed as a fraction of an individual's
entire world-wide income.

What about universities that send staff scientists to work
at the various national laboratories? Typically, these
scientists might work for weeks at a time (not de minimus)
in several high-tax states -- when I was in that position,
which wasn't that long ago (but outside the statute of
limitations), the question never came up. Are there tax
treaties between states that cover this sort of thing?
Thinking of where I worked, it would have been a significant
disincentive had my university "done the right thing".

And exactly how is a small business (or large one for that
matter) supposed to comply? I now run a small consulting
firm out of Nevada and we're considering sending employees
(including myself) into CA. How is one supposed to withhold
and report? How much of the income would be attributable to
CA? Pro-rate salary according to the number of days worked
(say 5/7 th's of the base salary for each week)? Would it be
considered acceptable to lower ones salary for the duration
of a contract (unlikely to be longer than 3 months) to
minimize CA taxes (as an owner, I do have that flexibility
at least for myself)? What about liability for such add-ons
as CASDI, for which the payee can never receive any benefit?

The whole system seems designed to restrict the inter-state
trade in services. I know it has been argued in this forum
before that it somehow "levels the playing field", but were
this to be the case, non-residents ought to get the same
benefit as residents for their money (in CA, access to the
UC system, for example). Since they do not, it all seems so
very unfair.

Are states like CA likely to be happy to receive any income
at all, or are they likely to dig their heels in when one
pops up on their radar screens and go for the jugular.
Having dealt with the CA state board of equalization before,
I think I'm not likely to be thrilled with the answer.

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Barry Margolin <barmar[at]alum.mit.edu> writes:

- quote -

I believe that you darn well *should* be expecting to
potentially pay taxes on those earnings ("potentially"
because your CA earnings might not be enough to be taxable).
However, for non-celebrities, CA has no way to find out you
were in-state, so no way to enforce it.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Barry Margolin wrote:

- quote -

It applies to the executive as much as to the athlete. If
your company sends you to work in the California office for
a couple of weeks, and your total gross income exceeds
California's filing requirements, you are subject to
California tax on your earnings from services performed in
the state. This is true of everybody. Of course, if you
work out of state only on rare occasions and for short
periods of time, it is unlikely that anybody is going to get
excited about it. Some states have de minimis rules; others
do not. EVERY state that imposes a comprehensive individual
income tax asserts jurisdiction to tax nonresidents on
income from sources in the state, which includes income from
services performed there.

In the late 1980's the national accounting firm I was
working for at the time was "caught" by the State of
Colorado. They had sent consultants (installing ERP
systems, I think) into the state for extended periods of
time working on projects there, and had not withheld
Colorado taxes. There was talk of criminal prosecution.
You can imagine how quickly the firm got into compliance!
From that time on, we were all required to show on our time
sheets not only what client or project we worked on, but
where we did the work. And the firm withheld for every
state even if we spent only a day or two working there.

I believe all the national and most of the regional
accounting and law firms are in compliance nowadays, and
most large corporations as well. A lot of smaller businesses
have not got the message. I talked to some folks recently
from a consulting firm in Atlanta that has been sending
people on contracts lasting 9 months or longer all over the
U.S., and withheld only Georgia taxes on everybody. I
referred them to a state and local tax consulting firm in
their area that will be able to help them get into
compliance.

Katie in San Diego

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Dick Adams wrote:
- quote -

Grapefruit League - Florida
Cactus League - Arizona
Texas - Cactus League

Bill

Moderator:
I made a mistake on a Baseball question? ![at]#$%^&* Wow.
Texas plays in the Cactus league which is in Arizona.

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"Paul Thomas, CPA" <paulthomascpapc[at]bellsouth.net> wrote:
- quote -

Is this only true for occupations where you spend a
significant portion of your time away from the state of your
main office? If I normally work in Massachusetts, but my
company sends me to work in the California office for a
couple of weeks, I don't expect to pay California taxes for
the earnings during those weeks. An athlete probably only
spends 3-4 days per year in any particular away game state,
less than a ordinary executive traveling to another company
office for a week or two -- why does the athlete have to pay
taxes in those states, but not the executive?

However, baseball players in northern states *do* spend
several months in the south for spring training -- it would
make sense for them to pay taxes in the southern state
during that time.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

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<patrick.20414[at]gmail.com> wrote:

- quote -

I once saw an article with Shaquille O'Neal's accountant in
it, and yes, you are correct that the pro athlete must file
a return in every state that he plays in. The accountant had
a stack of returns nearly two feet high, ready for O'neal to
sign. If I could only get ONE of those clients.

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- quote -

Have the Yankees, Mets, Knicks, Liberty, Rangers, and
Islanders all left New York, and I didn't know it?

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patrick.20414[at]gmail.com wrote:

- quote -

It all depends on the facts and the law of the jurisdiction
where the team that employs the player is located.

As Paul noted, professional athletes pay tax on an
apportioned share of their earnings to every state where the
team plays games or where it engages in other activities
such as spring practice, unless the state has no individual
income tax or has a reciprocal agreement with the state
where the athlete resides. The proration is usually done on
a "duty days" basis -- counting all days from the beginning
of spring practice to the last playoff game in the
denominator, and all days in the state in the numerator. Of
course Texas has no reciprocal agreement with any other
state, since it has no individual income tax.

There are no special rules for professional athletes similar
to the rules for military personnel, who retain a domicile
in the state where they lived when they joined the service
unless they take specific action to change it. The military
rules are prescribed by federal law (the Servicemembers'
Civil Relief Act of 2003, successor to the Soldiers' and
Sailors' Civil Relief Act of 1940).

Each state defines residence for income tax purposes by its
own rules. So if a player who originally lived in Texas was
hired by a team in Illinois, and moved his family to
Illinois, bought a house there, sent his kids to school
there, etc., he would probably become an Illinois resident
for tax purposes even if he still considered his domicile to
be in Texas. Under Illinois law, he would be present in the
state for a purpose that is not temporary or transitory
(under an employment contract that could be renewed
indefinitely), and therefore a tax resident of the state.

On the other hand, if the same player kept his home and left
his family in Texas, and traveled to Illinois for games and
practices there, he might not become an Illinois resident.
Illinois would take all of the facts and circumstances into
consideration in making that determination.

So ... it depends.

Katie in San Diego

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patrick.20414[at]gmail.com wrote:

- quote -

The $10 million is a typo. Baseball players are taxed in
the State in which they live and in the States in which they
play. So with the Rangers, Wells would play half his games
in Texas and that means a healthy portion his salary would not
be subject to State income tax. I suspect any games he plays
in Florida would be treated the same.

Texas goes to Spring Training in the Grapefruit League which
is in Arizona. Some of his salary may be taxed there.

Dick

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<patrick.20414[at]gmail.com> wrote

- quote -

Income is taxed under two scenarios. One being your state
of residence taxing all income regardless of where it's
earned. The other, the one that hits home, is that tax is
imposed by the state in which it is earned. There's a good
chance that for every away game, taxes are due to that state
(where the game is played).

So, unless there is a reciprocity agreement between states
(NY and NJ come to mind, but then no one actually plays in
NY anymore), an athlete's income would be subject to the
same rules for any non-resident earning income in that
state.

And that just doesn't apply to athletes, but artists,
entertainers, musicians, etc, as well as their crew. So the
coaches, paid cheerleaders, road crew, and staff are also
filing dozens of state returns each year.

But then, that's why they make the big bucks.

--
Paul Thomas, CPA
paulthomascpapc[at]bellsouth.net

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Hello,

I read in the newspaper that should baseball player Vernon Wells sign
with the Texas Rangers for roughly $16 million to $18 million per year,
he would save roughly $10 million / year in tax savings considering he
makes his principal home in Texas and Texas has no state income tax.

Currently Vernon Wells plays baseball in Canada. Can a pro sports
player not keep his tax advantage by designating his principal
residence in Texas but at the same time playing for a sport's team
outside the state of Texas?

Thank you

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