Discussion:Online education "Nexus"
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Discussion Forum Index --> Basic Tax Questions --> Online education "Nexus"
Discussion Forum Index --> Tax Questions --> Online education "Nexus"
| 9 October 2009 | |
| Client teaches at 13 different universities throughout the country. He does this from his desk in California. What is the position with filing in the various states. Any suggestions would be appreciated. | |
| October 9, 2009 | |
| None if he never leaves his desk. Some states might disagree, but generally there must be physical presence. | |
| 9 October 2009 | |
| Physical presence isn't necessarily required to create nexus for a business. See, e.g., Lanco, Inc. v Div. Of Taxation, New Jersey Superior Court, A.D. No A-3285-03T1 (2005), affirmed NJ Supreme Court, 188 NJ 380 (2006), cert. den. U.S. Supreme Ct. No. 06-1236 (2007) (Lane Bryant's Delaware trade mark/trade name licensing subsidiary had nexus with NJ); Tax Comm'r v. MBNA America Bank, West Virginia Supreme Court, 640 SE2d 226 (2006), cert. den. U.S. Supreme Ct. No. 06-1228 (2007) (nexus found for out-of-state financial services company through substantial in-state receipts from credit card customers). However, I've never yet heard of a case where a state asserted jurisdiction to tax an individual who had no property and had never set foot there. As states move toward assigning sales of services to the sales factor numerator of the state where the benefit of the service is enjoyed (e.g., California effective in 2011), though, I won't be surprised if states start asserting economic nexus with individual service providers.
For now, though, I don't think any state will assert jurisdiction over Diego's client. | |
| 10 October 2009 | |
| Thank you very much. My concern is that the intitutions issue W2's indicating the state wages and the respective states but we will cross that hurdle if it arrives I guess. | |
| 10 October 2009 | |
| This reminds me of the same fellow that keeps showing up on here that has 15 job, like the old skit on "In Living Color".
Now, he's teaching. Who is this person? The only man I can think of that teaches at 13 universities and never leaves his chair is Stephen Hawking. Well, maybe KatieJ, but even she'll get up and berate someone ever once and a while (which I heartily approve of). There's nothing I can think of that 13 people want to know, much less 13 universities (except, perhaps, a course in creative bank accounting). No sir, this fellow is up to something, and I won't rest till I figure out what it is (because I want in on it). | |
| 10 October 2009 | |
| Diego, if the universities do issue W-2s and withhold tax for the states where they are located, you'll have to file nonresident returns with those states to get the withholding back. California won't allow credit for those taxes because if the services were performed in California, the compensation is California source income.
I would check with the client to find out whether any other state taxes have been withheld so far. If so, there may still be time to get that straightened out with the payers, at least going forward. | |
| 10 October 2009 | |
| Crow this is online teaching.
Katie, yes thank you, no withholdings were made Just Box 15 and 16 filled in. Speaking of nexus, I have another one of those issues, client was an HR consultant based in Seattle, work for a MA company also online. He was fired, moved to California from Seattle and was the awarded money in an unfair dismissal claim, $150k, they issued him a W2 and withheld MA state taxes. What are your thoughts here? Sounds like this area is one of your interests. The SSF is quite interesting however I think making market based sourcing of intangible income elective means CA will not collect its share of income from intangible property earned by corporations doing business in CA. | |
| 10 October 2009 | |
| Diego, when your client was working for this Massachusetts company in Washington, was he paying MA income tax on his salary? Massachusetts taxes nonresidents on income from employment "carried on" in Massachusetts. Mass. Gen. L. ยง 5A(a)(1). He would have been subject to MA tax only on income earned by working in MA. The wrongful termination claim payment would be subject to MA tax only to the extent that he performed services in MA -- which is probably not at all. You'll have to file a nonresident MA return to get the withholding back, but I don't believe he has any MA source income arising from this payment. If WA had an individual income tax, it might be taxable there, because it compensated him for wrongful termination of his services in WA.
Of course CA will tax it on a residence basis. CA would not consider it to be MA source income, so if he did pay MA tax on it, CA would not give him credit for the MA tax. The FTB's revenue estimate on the single sales factor is -$250 million for FY 2010-11, -$750 million for 2011-12, and -$800 million for 2012-13. A legislative staff analysis of the bill (SBx3 15) suggested the long term cost could be up to $1.5 billion annually. There were three other corporate tax provisions in the bill: a "bright line" test for nexus that asserts economic nexus ($500,000 of sales to California makes you a taxpayer, unless protected by P.L. 86-272 or the Commerce Clause); replacing the "Joyce" rule with the "Finnigan" rule (I think I wrote a long explanation of that on this forum some time back, which you may be able to find by entering "Finnigan" in the yellow box); and the market-based rule for sales of other than tangible personal property. The FTB analysis lumps all three of those provisions together and estimates increased revenue of $10 to $25 million in 2010-11 and $30 to $40 million in each of 2011-12 and 2012-13. http://ftb.ca.gov/law/legis/09_10bills/SBX3_15_final.pdf | |
