State Nexus

[Nashville]

[fictitious names, but very realistic situations]

Arbor Tree Expert Corp is a nationwide specialist in tree-trimming and removal. They are headquartered in Atlanta, GA, and most of their revenue comes from very large contracts with local power companies. They have a contract with General Lee Power Company in Georgia and Kentucky Power & Light, among many other contracts. They have a multi-state payroll system, with payroll taxes to every state where they have personnel dedicated to work these contracts.

On January 20th a catastrophic ice storm hit north and western Kentucky. Kentucky Power & Light has reciprocal disaster agreements with tree contractors in neighboring states, including Arbor. Arbor responds by sending 40 bucket trucks with chainsaw crews to Kentucky. This corresponds to some 100 people working 21 days consecutively, at a rate of $50/hour. Each employee averages a gross of $9000 for 21 days of intensive work before returning home to Georgia.

Arbor has a crew already in Kentucky, a payroll already established in Kentucky, out-of-state workers in Kentucky for 21 days, work being done within the physical borders of Kentucky, and a contract let by a Kentucky-based company.

The Great Commonwealth of Kentucky claims the catastrophe payroll, some $900,000 as outlined above, should be Kentucky-source income.

Are they correct??

[BHoffman]

I vote yes. IMHO: The work was performed in KY. NR employees' W2 would reflect the earnings in KY and they would have to file a KY state tax return as NR.

[erchess]

I Agree with Kentucky

Work is performed in Kentucky and state w/h needs to be to Kentucky and the workers will need to do Kentucky Returns of some sort.

By the way, any time this company feels financial or other pain I dance a happy dance. In NC they do business as a whole bunch of very small companies so as to be exempt from providing workman's comp to the employees who when hurt are out of luck.

[Nashville]

Duke Power

In most states, this practice is finally being addressed. Almost all of your state is covered either by Duke Power or Carolina Power & Light, and a small portion by Santee Power. Workmen's comp is primarily state law, so this can only be addressed by the states. Power Lines, chainsaws, logging, etc. have horrendous workers comp rates, so if you can find a tiny subcontractor small enough, he will either be exempt or just simply won't pay.

What happens, however, in these huge lawsuits, is that the Dukes, CP&L, and Santees are all named as co-defendents, as lawyers will find someone with money before they ever pursue the case.

In Tennessee, a company can have up to four people without being subject to workers' comp laws. However, I have customers who are now having to pay on their subcontractors 1099s. So the travesty is not as bad as it once was.

[BHoffman]

In AZ, worker's comp is required for subcontractors unless they cough up an insurance cert showing they have their own policy. If the sub is a one-guy IC, then I believe he can opt out of the WC by filling out a form. No form or no cert gets caught in the WC annual audit and client gets nailed hard.