Multiple States

[tpert]

A friend's son has taken on a position with a local semi-pro sports club. He is not a player, but more an organizer/scheduler of team events and sponsors. However, he does travel with the club when they go to events around the country (probably around the world).

Under these circumstances, would his work be considered to be earned in multiple states (as the players would) and thus, would we have to prorate his earnings by state and compare that with every state's filing requirements? I would presume that this extends to Canada and Mexico (and other countries) as well.

He is not earning a lot of money. I do not suspect he has thousands to spend on tax return preparation or the friend would not have asked me about the situation.

Can anyone give me any guidance on what to tell them?

Thanks.

[Gary2]

I assume he'll actually be working while traveling, as opposed to the travel being a fringe benefit.

As far as I know, the answer is yes. Also look for de minimus rules based on the number of days. In the case of other countries, check the tax treaties.

[appelman]

I don't think I'd worry about other countries.

Unless his employer withholds foreign tax, which doesn't seem likely.

[jimmcg]

Unless his employer withholds foreign tax, which doesn't seem likely.

I would worry if you intend to return to that country's jurisdiction. Some countries do not have what we have come to know as "due process."

[luke]

The person sounds like an employee and SHOULD receive W2s with multiple states earnings/withholdings? If employer is not keeping track of multiple states then how could the states know what was earned where?

[FEDUKE404]

Somewhat relevant war stories

Several years ago I had to prepare a tax return for a person who was on a professional team that played in several East Coast (nothing out of country) venues. While the return was somewhat complicated, it was not horrendous and the software sorted things out pretty well. Everything went to IRS/home state, and the other states (NY included) got their fair share. I do recall PA had some weird adjustments (not deductions) re all "business" expenses.

The real classic was years ago when I was with a commercial firm and.....the circus came to town. The poor guy's W2s looking like a small novel, essentially covering income earned for every stop along the way (frequently including local taxes). I found it interesting that, recalling through the fog of years, there was no state withholding anywhere but frequent local taxes wherever possible.

The office manager took it as a challenge and fought through the mess, and basically only had to file a US/home state return, and perhaps a couple of states. The poor guy did not have that much income...he literally shoveled "stuff" as part of his job, and IIRC his "home" was technically the circus train. And the IRS would not accept such an address, so we ended up using a "C/O" address for his closest relative.

Enjoy the last couple of weeks of tax season.....and then we get to start all over again!

FE

[Gary2]

The person sounds like an employee and SHOULD receive W2s with multiple states earnings/withholdings? If employer is not keeping track of multiple states then how could the states know what was earned where?

Not necessarily. Some states don't require out-of-state employers to do any withholding, but still require the employees to be subject to taxes, New York has the bizarre requirement that box 16 be the same number as box 1, making it useless for determining income earned in NYS.

[dtlee]

The person sounds like an employee and SHOULD receive W2s with multiple states earnings/withholdings? If employer is not keeping track of multiple states then how could the states know what was earned where?

This is not always a good gauge of liability. The way things work in the United States is that every employer is not required to have a deposit account with every state that an employee may travel to.

For example, many New Jersey employers have their employees working on site at New York locations and withhold only New Jersey taxes. These employees are responsible for making estimated tax payments to New York based on the amount of income earned there. Interestingly, these employees might be residents of one of several states. A Connecticut resident who works for these companies and works solely only in New York, owes resident tax to Connecticut and nonresident tax to New York, regardless of the fact that the company may be sending withholding only to the federal government and to New Jersey.

Regarding how the states sort it out, they often don't but they frequently know who to expect tax returns from (if New York is any barometer). I know that New York State tracks major sports teams and local talk shows and soap operas for "stars" who appear here. They expect tax returns from all of them even though many of the amounts owed may not be huge (a superstar who played only a day in New York State would still owe thousands). I have also found that they expect any jockeys finishing in the first four positions in any race at their thoroughbred tracks (not as familiar with harness racing) to file New York State tax returns regardless of where they reside.

I have no idea if they would be watching semi-pro teams as well since the amounts realized would be much smaller. However, any tournament prizes awarded might be very easily tracked.

[appelman]

A rant!!

Have any efforts been made to put an end to this nonsense? Either through the courts or by legislation? It makes some sense for someone like the circus worker, who is an itinerant with no state of residence. But for others, by what logic should the wages of an employee whose work takes him or her through a variety of states be sourced to any but his state of residence? (Earnings of the employer, of course, are a different matter.) It's something like the Great Sales Tax Wars! State revenue departments are notoriously oblivious to the ratio of paperwork to proceeds. It seems to me that the practitioner community should be taking the lead on this. Sure it generates lots of billable hours, but is this really the kind of work we want?

End of rant.

[Gary2]

So an actor could buy a home in Las Vegas, spend 4 or 5 months a year filming a TV series in Los Angeles, maybe 6 months performing on Broadway, claim domicile in Nevada and pay no state income tax? I think you'd have a better chance of getting Beatty and Hoffman to remake Ishtar.

Businesses haven't even been able to get Congress to pass a uniform apportionment law for corporate income taxes (which sometimes leads to double taxation), so I don't see any chance for individual income taxes. The best you can hope for are limited reciprocity agreements. Minnesota and Wisconsin recently dropped their reciprocity agreements; I don't know why, but perhaps the politics behind that even would shed more light on why it's unlikely to get a nationwide rule.

[jimmcg]

Have any efforts been made to put an end to this nonsense? Either through the courts or by legislation? It makes some sense for someone like the circus worker, who is an itinerant with no state of residence. But for others, by what logic should the wages of an employee whose work takes him or her through a variety of states be sourced to any but his state of residence? (Earnings of the employer, of course, are a different matter.) It's something like the Great Sales Tax Wars! State revenue departments are notoriously oblivious to the ratio of paperwork to proceeds. It seems to me that the practitioner community should be taking the lead on this. Sure it generates lots of billable hours, but is this really the kind of work we want?

End of rant.

The concept of taxing earnings where earned is a logical and fair concept. Some contigous states have reciprocal agreements having the tax earned taxed in the state of residency and not the state in which earned but these apply to contigous states only.

[dtlee]

Does anyone know any guides that cover these international scenarios?

[Gary2]

You might start with Pub. 901, U. S. Tax Treaties. Although it's intended for non-resident aliens with respect to the U. S., most treaties are more or less symmetric, so it could give some sense of what the situation might be. Besides, the price and convenience is right. I believe the text of the tax treaties are also available from the IRS web site, in English.

For the individual countries, the client is going to have to make sure they have the appropriate work visas or other permissions. One would hope that the sources for such information, often their U. S. embassies or consulates, would also have tax related information. Though I wouldn't bet on it. The Social Security Administration and DHS each make the IRS seem like a smooth running machine.

[Nashville]

I think he must file

...if he meets the filing threshholds. Remember his employer already has professional athletes so they are already having to report wages to the various states. This whole mess started with athletes making multi-million $ contracts. Turns out some of these players were making $75,000 every game. 3 games in Pittsburgh and 3 more in Philly means $450,000 taxed in PA alone, even if he doesn't live there.

Having said this, it's quite possible that this guy (not making much $) could easily not be allocated enough to meet the filing threshold in some of these states. He would still be required to pay on his entire earnings in his home state, and be entitled to credits for those states where he had to pay.

Yes, sounds like he would have a huge fee for having his taxes done, and that may not sound fair. But none of the states involved are going to force allocation of a $10MM salary and then not require allocation of lower amounts (other than off the hook with a filing threshold). And as preparers, it takes a voluminous amount of time to prepare returns like this.