Discussion:State Residency
From TaxAlmanac
Discussion Forum Index --> Basic Tax Questions --> State Residency
Discussion Forum Index --> Tax Questions --> State Residency
| 30 October 2009 | |
| State 1 defines a resident as: (1) Every individual domiciled in State; and (2) Every other individual whether domiciled in State or not, who resides in State for other than a temporary or transitory purpose.
State 2 defines a resident as: (1) every individual who is in the State for other than a temporary or transitory purpose, and (2) every individual who is domiciled in the State who is outside the State for a temporary or transitory purpose. Taxpayer domiciled in State 1, children (in college) remain in home and Taxpayer intends on returning after retirment, therefore, since domiclied, will be considered a resident of State 1. Taxpayer will move to State 2, for employment, but no stated contract, therefore does not meet the "temporary or transitory purpose", therefore considered resident of State 2. Despite being able to claim a tax credit paid to another state, Is it possible and common for Taxpayer to be filing resident returns in more than one state. | |
| 30 October 2009 | |
| thanks Kevin. just clarifying, "y" means yes (and not "why"), right? | |
| 30 October 2009 | |
| Another question, corporation in which Taxpayer is employed, has nexus in State 1. When employee moves to State 2 for work on a sister corporation's operations, but still employed by only the State 1 corporation, State 1 corporation must withhold State 1 and State 2 payroll withholding taxes?
Does this create Nexus in State 2 for the State 1 corporation? the State 1 corporation does not have any business in State 2, but sends it's employee to sister corporation to perform service for instead of being on two payrolls... | |
| 31 October 2009 | |
| Certainly the employer corporation has established a connection with State 2 by sending an employee to work there for an affiliated company on an indefinite basis. Since it has an employee performing services in State 2, it is clearly required to register as an employer there, withhold State 2 income taxes from Taxpayer's wages, and report Taxpayer to State 2 for unemployment insurance purposes. Whether employer is subject to State 2 corporate income tax, or required to collect and pay over use tax to State 2 on retail sales to customers there, really depends on whether the state considers the presence of one employee performing services for an affiliate to be "more than the slightest presence." You might argue that it is de minimis. Also, if the employer corporation makes no sales into State 2 and has no property there, its only apportionment factor would be a payroll factor; if it's a three- or four-factor state, or if it's a single sales factor state, the resulting income tax liability would be zero or minimal unless it has hundreds of millions of net income to apportion <G>. If it isn't making retail sales to State 2 customers, use tax collection would not be an issue.
State 2 income tax should be withheld from the employee's wages. Even if it considers the employee a resident, it will probably allow credit for the tax paid to the source state, State 2. State 1 withholding would apply only to the extent that it exceeds the amount required to be withheld for State 2. Of course you would have to consult each state's specific rules to be sure about all this; these are just the usual rules. If this really is an indefinite assignment and the employer is not registered in State 2, it would certainly simplify things to transfer the employee to the affiliate's payroll. If affiliate has no nexus with State 1, Taxpayer could cover any State 1 tax liability in excess of the credit for State 2 tax by making estimated tax payments. Watch out for income from intangibles if Taxpayer is a resident of both states. Most states consider interest, dividends, and gains/losses on sales of intangible investments to be sourced in the state of residence. If Taxpayer is a resident of both states, both states may consider that income sourced to themselves; and many states do not allow credit for taxes paid to another state on income that is, by the lights of the state granting the credit, sourced in the other state. Taxpayer could be in a situation where both states will tax the intangible income without credit relief, depending on the states involved. | |
