Upon thinking about this further, there is another possible complexity to this issue. Since this 1099-MISC is originating from a payer in California, will they send a copy of the form to the state of California even though it is not taxable California income due to the asset being located outside California? If so, that poses another issue. The 1099-MISC form will only show rent amounts paid and not where the asset is located. If California gets a copy of the 1099-MISC form with no additional details and there are no taxes paid since it is not taxable, I risk being audited. On top of that, California has mandatory withholding requirements on payments. If this is reported to California, I fear that I may have withholding taken out on the payments even though it is not taxable. Furthermore, would this require that I file a California return just to substantiate where the property is located and to also get a refund on any mandatory withholding? It sounds like this could open up a huge tax mess if the payer is required to send the 1099-MISC to the state and there is mandatory withholding. Thanks for your help.
