Multi-State Tax Issue

[sidekickin]

Hi,

I have income from a source that I am unsure where the income will be taxable.  The company is issuing me a 1099-MISC for rent/lease payable on an asset that I own.  The 1099-MISC is being issued by the company based in California on the asset that I own which is located on their property in Oklahoma.  I am an Ohio resident.  Is this income taxable in California because that is where the company is based and the 1099-MISC originated, or is it taxable in Oklahoma because that is where the asset is located?  Thanks for your help.

Bill

[Mike9241 · Accepted solution]

no to taxable in CA since the property is not located there. yes to your home state if it has an income tax and yes to Ok since that's where the property is located

[sidekickin]

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.

[TomD8]

@Mike9241's answer is correct.  The income is taxable by OK (where the asset is located) and by OH (your state of residence).  You may claim a credit on your OH return for the taxes paid to OK on that income.

If CA taxes are mistakenly withheld, you'll have to file a non-resident CA tax return - showing zero CA income - in order to have those taxes refunded.

If CA questions you about the 1099-MISC, you would advise them that you are not a CA resident and that the property/asset is located in OK.