State Nexus Question

[Snaggletoof]

Megastate Corp has operations in 11 states at military installations. Georgia is not one of the states.

However, at an Air Force base in Idaho, Megastate has hired the wife of a serviceman who has kept his home in Georgia for state tax purposes. His wife was a resident of Georgia as well.

Under last year's new law, this employee has the right to file Georgia taxes instead of Idaho taxes, thus she has asked Megastate to withhold Georgia taxes on her paycheck instead of Idaho. Megastate has complied with her wishes and issues her a Georgia W2 at the end of the year.

Question: does Megastate now have nexus in Georgia and be required to file a Georgia corporate return? Initially, I don't think so, but remember the flimsy excuses these states are using to create nexus -- in particular New York's battle with Amazon just because there are agents there.

[BHoffman]

I vote No.

[erchess]

How much income

would the Georgia return show if it were filed? I am thinking the answer would be zero but maybe I am missing something. If it is a zero income return, on the one hand how hard and expensive is it to prepare and on the other hand what's the worst that could happen to Megastate if it does not file?

[Snaggletoof]

State Corporate Return

Erchess, the amount of "income" in any given state is irrelevant. Obviously, in this example, Georgia would not have any "income" by our definition of profits.

They don't do that on out-of-state corporate returns. They use an allocation factor. A typical weighted average allocation formula might be Sales 40%, Ownership 30%, Payroll 30%. The issuance of a Georgia W-2 might trigger a requirement since the allocation formula might include payroll.

[erchess]

TY for the info

I'm glad I don't handle any multi-state corps or partnerships.

If I remember correctly you're an EA. If so you might contact the Georgia Society of Enrolled Agents. Then too there are a couple of Georgia people on this board including Harlan and Peachie. Maybe you could PM one of them.

[ChEAr$]

I'm glad I don't handle any multi-state corps or partnerships.

If I remember correctly you're an EA. If so you might contact the Georgia Society of Enrolled Agents. Then too there are a couple of Georgia people on this board including Harlan and Peachie. Maybe you could PM one of them.

So let me chime in here. The mere filing of a W2 with GA income tax people will go unnoticed in the larger scheme of things. No little clerk in Atlanta will say to herself:
"Gee, this creates NEXUS! I'd better tell corporate division about this."

[Snaggletooth]

Hypothetical Clients

All help appreciated, but to avoid any resemblance to a real client, the station is not in Idaho, nor is the former domicile in Georgia. This is a "for instance" only.

Having said, I wouldn't doubt that I'm giving Georgia too much credit, but this really did happen in California. Client had a CT employee accidently entered as CA, and somehow the payroll service filed him on an employment tax return. CA started a witchhunt, needless to say.

[S T]

If Calif

I will chime in now
If truly Calif, you could have an issue, not only with the Employer reporting, but also the employee reporting.
California is "bottom fishing" for revenue

Sandy

[JON]

Unless receprocity(sp)

If the work is performed in the corp's state it is taxes there. It may be income in the the resident's state if a full year resident there, but you should receive a state tax credit for the state were the employment was. No nexus to resident's state...IMHO

[CinSee]

I've recently dealt with a client who has very similar circumstances. The majority of her income is from the federal government and she is a Georgia S Corp. For her "jobs" she has to have employees, not allowed to have independent contractors.

Two states that she has no direct income from but she did have employees were North Carolina and Oklahoma. Oklahoma stated that they do have nexus and they have to reasonable allocate income from the job the employee worked on based on the amount of revenue attributed to the employee. A scenario she provided involved truck drivers driving through the state with no pickup or delivery of loads within the state. By driving through the state they have Oklahoma revenue. I don't remember the details of how they can calculate the revenue. There are several ways this can be calculated. North Carolina's response is virtually the same.

While most states use the three factor apportionment (revenue, payroll and property) Georgia only uses the revenue. As in the case with Oklahoma, I believe Georgia follows the same theory.

With the economic situation and everyone having to do so many budget crunch, more states are reviewing nexus with a fine tooth comb trying to get anything they can.

I have two clients who have received notices from Georgia questions the charitable contributions, self employed health insurance and employee unreimbursed expenses for the 2009 tax return. Unfortunately I believe this type of scrutiny will only increase.

[Gretel]

A scenario she provided involved truck drivers driving through the state with no pickup or delivery of loads within the state. By driving through the state they have Oklahoma revenue. I don't remember the details of how they can calculate the revenue. There are several ways this can be calculated. North Carolina's response is virtually the same.

Wait a second. Maybe I am missing something, but why would it be different for self-employed truck drivers then for truck drivers who are employees? ...under the above circumstances, driving through a state.

There is an old ruling about this that states are supposed to leave their hands off if an interstate truck driver is involved, even if he loads or unloads and that the truck is supposed to be taxed in his home state only. Maybe it's different if only local route and they are driving through one specific state all the time? Maybe it changed? There is a post some time back, that I either started or was involved in. I will try to find.

[Gretel]

Here it is.

Was actually posted in March of this year and following response came from Jesse.

I didn't read it in it's entirety but it may be worth researching.

https://secure.dor.state.or.us/piti/...=topic&id=0039

The Amtrak Reauthorization and Improvement Act of 1990, Public Law 101-322, prohibits states and local governments from taxing compensation of certain nonresident employees who have regularly assigned duties in more than one state.

[Davc]

The Amtrack Act does not apply to a Corp. Or to any K-1 income of the shareholder(s).