PLLC residing in Texas and doing contract work in California.

[Mary805]

Hi - I have PLLC for counseling services in Texas where I reside . I been offered remote consulting job for a company in California , will I need to pay taxes in the state of California ? 

[Anonymous_]

California has market-based sourcing rules where the income derived from the sale of services is sourced to the place where the benefit of the service is received.

Thus, if you have clients in California, you probably have to file a California return.

Others on this board may provide further input and are more familiar with these rules.

[Mary805]

Thank you , what about as a W-2 employee ? I’ve done some reading where it states I can exempt from having taxes withheld and filling as a non resident and I won’t need to pay CA taxes . Is that accurate ? 

[MayaD]

As a nonresident, you pay tax on your taxable income from California sources.

Sourced income includes, but is not limited to:

• Services performed in California
• Rent from real property located in California
• The sale or transfer of real California property
• Income from a California business, trade or profession

If you physically worked within California, your W-2 income might be taxable.

Check the California Gross Income chart in the link below for your filing status, age, and number of dependents to determine if you have a filing requirement.

2023 Instructions for Form 540NR

[Edited 01/10/2024 |9:36 AM PST]

[Opus 17]

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@Mary805 wrote:

Thank you , what about as a W-2 employee ? I’ve done some reading where it states I can exempt from having taxes withheld and filling as a non resident and I won’t need to pay CA taxes . Is that accurate ? 

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I believe the rules are different for self-employed/independent contractors and W-2 employees.   If you are a W-2 employee, you are taxed based on where you actually live or perform the work, not where your clients (actually, your employer's clients) are located.  California can not tax you in this situation unless you live or travel to California to perform work for those clients.  (For example, if you worked 13 weeks for those CA clients but only 2 weeks were on site in California, then 2/52ths of your annual income is taxable in California.

For self-employed/independent contractors, you are taxed based on the location of your clients or customers.  Even if you never set foot in CA but some of your customers are located there, you must file a CA non-resident return and allocate your income and expenses accordingly.

@TomD8  can you confirm?

[TomD8]

@Opus 17 --

CA does treat W-2 employees differently than independent contractors with regard to income sourcing.  The income of a W-2 employee is sourced where the work is actually (physically) performed.  But due to a 2019 court decision (the Bindley decision), the income of an independent contractor (which is normally reported on a 1099-NEC) is sourced to “the location where the taxpayer’s customer has either directly or indirectly received value from delivery of that service."

https://ota.ca.gov/wp-content/uploads/sites/54/2019/08/18032402_Bindley_Decision_OTA_053019.pdf

Thus an independent contractor who provides services to a client located in California is taxed by California on the income from those services, even if the independent contractor is a non-resident of CA and did not physically perform those services within CA.

Note that this ruling applies only to the State of California.