Yes, his income earned in North Carolina is taxable in North Carolina. You will prepare a North Carolina nonresident return for the income that he earned in North Carolina. You can figure out the amount earned in North Carolina by:
- First, calculate the North Carolina percentage by dividing North Carolina gross income by overall gross income. His gross income is the income reported on Forms 1099 (plus cash and check payments), before he took out any expenses on Schedule C. (If the contractor did not split up the amount he earned in North Carolina from other amounts, he will need to determine how much that amount was.)
- You will multiply the total net income (The income on Schedule C after expenses) by the percentage you received in step one. This is the amount of income to report to North Carolina.
Of course, since Tennessee does not have a state income tax, you will not need to file a Tennessee return.
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