Hawaii Taxes

[tacksman]

Client is a resident of Virginia.
Client does no work in Hawaii.
Employer is a Hawaii based company.
Hawaii taxes are withheld by Hawaii law unless an exception is applied for.
Client paid Virginia taxes and filed Non Res Hawaii, requesting all taxes w/h to be refunded.
Hawaii refused and billed him additional.
Cannot seem to get a straight answer from Hawaii or anyone else.
Question: Is it because the client is paid by a Hawaii based company that they require
the taxes to be paid by a non res? A non res who happens to earn some income in Hawaii from a company based elsewhere appears to be taxed in the usual manner ie only on the money earned in Hawaii.
In the unlikely event anyone has an explanation .....PLEASE help.

Thanks

[taxmandan]

Does he work in a company physical location in Virginia? Or is this a tele-commute situation, where he works at home for his convenience? Some states (NY for one) have tax laws that deem the tax state to be the location of the company and the employees owe them income tax. Not sure about Hawaii, maybe someone knows if that's the case but it wouldn't surprise me if they do have such a law.

[Nashville]

Virginia Payroll

Absent the work-at-home situation described above, if this guy is working in Virginia as an employee, then the company should have a Virginia payroll. Complete with Virginia SIT withholding and SUTA to Virginia.

Employee should bring action against his employer for the amount of taxes paid to Hawaii.
He has been double-taxed, because he can't claim "Credit for taxes paid to other states" on his Virginia return, if he's filing for Hawaii refund.

[Burke]

Hawaii taxes income from "Hawaii sources," as do most states, whether resident or not. Need to dig a little deeper. If it is W2 income from Hawaii-based source, he may very well owe Hawaii taxes. In which case, he can get an Out of State Credit on VA.

Most of the time, however, if a company's headquarters is in one state, and the employee works for a branch in his resident state, he only pays taxes to his resident state. The company should have an account for withholding VA tax and paying it to VA.

[JohnH]

I had one like this a few years ago. NC resident performing all services in NC, but the company was headquartered in some other state (Illinois or Indiana, I think). He was their only employee outside the HQ state so their payroll people just took the easy route and withheld home state payroll taxes because it was easier for them and they didn't want to file payroll reporting paperwork in NC. The client had never set foot in the other state.


He had to pay NC tax on the full amount of income of course, and when we tried to get the money back from the other state, they stonewalled. First said he had to file a "zero income" return, then they questioned it - accused him of being a tax protester & still refused to pay the refund. I think it took us a half-dozen letters & forms filings over 9 months or more to ever get them to turn the money loose. We just kept coming at them until they gave up.

Our last line of defense was going to be to try and force trhe employer to amend their tax filings & refund the money, but he wanted to keep working for them at the time and they weren't inclined to do anything to help him. As it happened, he quit about a year after all this was settled, but during the intervening time he simply told the employer to forego any state withholding for the following year(s) and he just paid estimated tax to NC.

[taxea]

Burke...not true. Hawaii taxes gross income from all sources if you are a resident and you can deduct the tax you paid to other states. Non-residents pay taxes on Hawaii income.
Original poster...email me if you want a direct contact in the hawaii tax office to call. What is the name and department of the employee that signed the correspondence from Hawaii? taxea

[Burke]

What's not true? That's pretty much what I said. I did not address the resident situation. John H has the solution here. If the client is genuinely not required to pay state tax to Hawaii, then he can stop withholding and pay estimated to VA.

[taxea]

"Hawaii taxes income from "Hawaii sources," as do most states, whether resident or not."

Burke..."whether resident or not" was the problem and that does address a resident return."

Chill, taxdude, I just wanted to make sure the poster got it right. taxea

[Burke]

I still don't understand, but maybe it's just the way it's being read. I did not mean to infer that residents only pay on Hawaii source income, if that is what you mean. Most states I have dealt with tax income on all sources, worldwide, if you are a resident of that state. And non-residents are taxed on income derived from within that state. Looks like Hawaii is no different.

[taxea]

Ah so des ka! As we say here. I did read it as though you were said whether or not a resident the taxpayer pays on Hawaii income only. So solly chalie taxea