State Income Tax Withholding

[KKill29]

I am employed as an Outside Sales Rep in Colorado for a company based in Oklahoma.  My company refuses to withhold and file Employee Colorado Income Tax.  Can they do this, what am I missing?!

[ErnieS0 · Accepted solution]

Your employer is required to withhold Colorado state tax if you are an employee. You can file a complaint with the Colorado Department of Revenue at DOR_Compliance@state.co.us.

Colorado says:

You must withhold Colorado income tax from any compensation paid to any employee if:

1. The compensation is subject to federal withholding for income tax purposes, and
2. The employee is a Colorado resident (whether working inside or outside of Colorado), or the employee is a nonresident of Colorado performing services in Colorado.

Withholding Tax Filing Requirements

[KKill29]

Thank you, make sense and lines up with everything I've read.  I just don't know how they have they have gotten away with this for so long.  I always assumed it was a loophole they were taking advantage of because I'm an outside sales rep.

[Hal_Al]

There may be a technicality (it's not clear that there is) that your employer is required to withhold state tax for every state that they have an employee in.  But it's inconvenient for them to do so.  It's much simpler for your to make quarterly estimated payments. 

[KKill29]

Understood, it is also inconvenient for me to file quarterly estimated taxes, and creates an issue with my families filing each year, I'd rather have my employer withhold these taxes straight away. 

If technically they are required to withhold, is it illegal NOT to do so.  Or can they continue to get away with this stating its inconvenient for them to do so?

[TomD8 · Accepted solution]

All your employer has to do is open a Colorado withholding account, which is free for them to do.  See this:

Withholding Accounts | Department of Revenue - Taxation (colorado.gov)

If you can't persuade them, you definitely should make quarterly estimated tax payments to CO.  Otherwise you'll be on the hook at year's end for a large tax bill, possibly including penalties.  As @Hal_Al said, it's certainly the easier thing for you to do.

[Rick19744]

This issue has been brought to the forefront as a result of the pandemic and a significant increase in remote workers.  I will provide some additional commentary:

• States are (and have been) scrambling to review their tax laws to make sure they are able to obtain the maximum tax as a result of the remote tax environment; which isn't likely to change much going forward.
• Your company is taking the position that the benefits of your services are derived in OK, and as such, are withholding OK tax.
• This shouldn't be that big of a deal.  When you complete your CO tax return, you will be taxed on all of your income, however, you will then get a credit for taxes paid to other states.  This minimizes or eliminates your CO tax liability.  The end result shouldn't be significant.
• This whole area may change in the next two years as a result of New Hampshire suing Massachusetts.  It is exactly on point to this issue and who has the "right" to tax remote workers; their home state , where the employees company is or where the benefit is provided.
• Your employer is most likely looking at this from a perspective of also having to file a return in Colorado and does not want to do so.  Employers generally want to minimize their "nexus" with other states to avoid having to file in multiple states.

In summary, I believe bullet 3 above should really solve your issue.

[TomD8]

@Rick19744 --

Re: your bullet point 4:

https://www.boston.com/news/politics/2021/06/28/new-hampshire-massachusetts-income-tax/

[Rick19744]

Well aware of that case.

The Supreme Court only rejected it because it was brought directly to the Supreme Court.

This means that the case will wind through the system over the next few years.

[TomD8]

@Rick19744 --

Thanks.

[KKill29]

They are not withholding OK state income taxes, No state taxes CO or OK are being withheld, only federal.

[TomD8]

If you are a CO resident who works exclusively in CO, your income is not taxed by OK.  It is of course fully taxed by your resident state of CO.

[KKill29]

Yes I understand that by being a full time resident of CO and working in CO I need to pay CO State Income Tax not OK. 

I'm trying to figure out if it is illegal for my company based in OK to refuse to withhold CO State Income Tax from my wages just because it is inconvenient to them?

[Rick19744]

@KKill29 we aren't going to be able to provide legal advice on a forum such as this.

There are many factors involved and a forum such as this is not conducive to developing all the facts.

I would recommend you pause and think about this.

Do you want to push the envelope here, with an end result of possibly being terminated?

Or can you just accept the fact that it's not going to happen and just make estimated tax payments to CO.  Most states you can do this online via secure EFT.