Re: Why did I get a request for tax return Califor... - Community
New Member

State tax filing

Sorry to bump this thread, but I'm in the same situation: did not set foot in CA in 2017 (previously lived there but moved away in 2015), but received contracting income reported on a 1099-MISC from a California-based company. The advice given in this thread -- that the income is not "California source income" and therefore not taxable by California -- seems to contradict lots of information I can find elsewhere. And apparently this may have changed very recently. In May 2019, the California Office of Tax Appeals ruled very recently that income from California-based clients is taxable as California source income.

 

For some discussion:

https://www.coblentzlaw.com/california-office-of-tax-appeals-gives-precedential-authority-to-bindley...

 

https://money.stackexchange.com/questions/95243/is-self-employed-work-performed-out-of-state-for-a-c...

Level 13

State tax filing

@abeboparebop   Thanks for posting this important info.  Two thoughts:  1) Apparently this ruling applies only to independent contractors receiving a 1099-MISC.  If this principle were to apply to non-resident employees, every nationwide employee of Apple (which is based in California) would have to pay taxes to California.  2) Since the final ruling was just made a few weeks ago according to the references you cited, is the ruling applicable to previous tax years?  Is it retroactive?  That's not clear.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Level 2

State tax filing

My question is this: can AZ now sue CA on behalf of this person? Why would states allow CA to take their resident's taxes just like this, or does this mean one can actually be double-taxed in the USA?? This is insane.  I received the same letter and now wondering how costly this will be to fight and perhaps ultimately pay to them. I do promise never, ever to set foot in CA again.  That state is...well, I cannot use the words I want to use.

Level 15

State tax filing

Ok ... AZ will do nothing for the taxpayer ... what happens is you file a non resident CA return  and then you will get a credit on the resident AZ return for the taxes paid to CA ... this way you do not pay twice.  This has always been the system even before this change in CA rules. 

 

So ... YOU  have to file the CA return and then AMEND the AZ return to get the credit.  

Level 13

State tax filing

<<what happens is you file a non resident CA return and then you will get a credit on the resident AZ return for the taxes paid to CA>>

 

CA and AZ are "reverse credit" states.  This means (if you're an AZ resident with CA-source income) that you may take a credit on your non-resident CA tax return for the taxes you pay to AZ on the same income.  In TurboTax, you would complete your resident state return before you do your non-resident state return, which is the reverse of the usual order.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Level 2

State tax filing

Thank you both for the reply but what happens when CA is demanding back taxes from 2017 and you already paid your state taxes that year? Would you get a credit in the 2019 Taxes (from your current state) or would you need to — depending on the state where you lived — have to file additional paperwork. I am sorry but any way you look at this, it's wrong. CA is just bankrupt and are desperate. 

Level 13

State tax filing

You cannot take an other-state credit on a 2019 return for taxes that were paid for 2017.

 

If you were an AZ resident with CA income in 2017, and you failed to take an other-state credit on your non-resident 2017 CA return, the remedy would be to file an amended 2017 non-resident CA return.

 

If you were a resident of some other state besides AZ in 2017, the situation might be different.  That's because CA has "reverse credit" with only a handful of states.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Level 2

State tax filing

I sincerely appreciate your responses, TomD8.  

 

I am actually an OR resident which does have the reverse credit agreement with CA.

 

However, although I operate as a sole proprietorship, my income comes from a CA company but not under a work-for-hire agreement like the Bindley ruling. It's more complicated in my case as it involves licensing and royalties of music, but I am wondering if it would be worth fighting with a lawyer or simply filing that 2017 CA Non-resident return, claiming my OR tax credit, and paying the difference.

 

I don't know if the penalties for failing to file that 2017 CA return are too severe to offset the reverse credit.  Tough choices due to a ridiculous decision by CA.

Level 13

State tax filing

<<I am wondering if it would be worth fighting with a lawyer or simply filing that 2017 CA Non-resident return, claiming my OR tax credit, and paying the difference.>>

 

If you received a demand letter from California FTB, the first thing I would do is comply with the letter.  If the letter gives you the option of filing a 2017 return, whether original or amended, I would do so, and claim the reverse OR credit.  A penalty for failure to file would presumably continue to increase over time.  Best to clean up the situation asap.  Just my opinion!

 

https://www.ftb.ca.gov/file/did-not-file/what-to-do-if-you-did-not-file.html

 

 

 

 

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Level 12

State tax filing

Definitely file a CA non resident return....teh CA FTB is brutal in their collection efforts and are difficult to deal with, you will have to file a return to get them off your back or it will haunt you forever and risk having your bank accounts levied...seriously, CA is a huge pain when they think you owe them money.

 

You will want to amend your OR return for 2017 to recoup the credit for taxes paid to another state.

♪♫•*¨*•.¸¸♥Lisa♥ ¸¸.•*¨*•♫♪
Level 13

State tax filing

<<You will want to amend your OR return for 2017 to recoup the credit for taxes paid to another state.>>

 

No.  Because of the reverse credit situation, you'd amend the non-resident CA return, not the OR return.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Level 12

State tax filing

Is OR a reverse credit state like AZ?  I know there's a few of them! 

 

That makes it even easier, just file the CA nonresident return and get credit for taxes already paid to OR.

♪♫•*¨*•.¸¸♥Lisa♥ ¸¸.•*¨*•♫♪
Level 13

State tax filing

@Lisa995  CA has "reverse credit" with 3 states: AZ, OR, and VA.   It also has reverse credit with residents of Guam.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

Level 2

State tax filing

Thank you both for the replies. It will still be costly and time consuming to prepare that tax return,  and all because of a ridiculous law in CA.

 

I got out of the state precisely because of the high taxes, crumbling infrastructure and very poor standard of living and yet I still have to pay for it?! I don't use any of their roads, schools, etc.

 

I will guess that ruling will get appealed and reversed in the near future. Honestly, I probably should fight it instead of just giving up and filing the return. In any case, thank you for your help. 

Level 2

State tax filing

@Orresident 

What did you end up doing? 

 

I turned in just the CA non resident return that showed I owed zero (also from Tax Year 2017.) But I know this is likely wrong. I imagine they will say I owe money on my 1099 that they wrote me a letter about in the first place. They received it from me in July but I still don't have an answer back yet.  Only got a letter they'd received it. 

 

But I can't figure out where in TT2017 to get it to say "this is CA source" so it even makes a calculation? Did you figure that out? 

 

I agree with you. They are soooo ridiculous. And it's a hardship on many of us to go back to years we already paid taxes in our home state.

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