Where do I need to pay state taxes?

[sam1965]

I received income for providing expert witness testimony. I live in state A, the law firm is in state B, and the trial is in state C. In which state do I need to pay taxes on this income? Does it matter if I have not traveled to state C yet to testify? Thanks for your help.

[Vanessa A]

Generally, if you earn income it is taxed in the state where you physically provide the service and your home state.  The state that the company you are working for generally does not tax your income if you have not performed services in that state.

No.  It does not matter that you have not traveled to the state yet, if you have already received the income.  If you are a cash basis taxpayer, which most people are, you will count the income when you receive it, not when you perform the service.  If you have not yet been paid, then you will not report the income until the year that you are actually paid whether it is before or after you perform the service. 

[sam1965]

Thank you very Vanessa for your reply. Just so that I understand correctly, if the lawsuit is in Illinois, the law firm is in Indiana, and I am in Missouri, I could choose to pay state taxes on the income in either Illinois or in Missouri. Is one preferable to the other?

I have received payment. The issue about travel is that in some cases I have worked in my home state writing reports and in other cases traveled to the state in which the lawsuit was filed to testify in addition to writing reports. Does this make a difference?

[Vanessa A]

No, you do not get to choose which one you will claim the income in.  If the lawsuit is in Illinois and you will be physically present in IL, then the income will be taxed by IL.  IN does not have anything to do with this as it is not income from IN.  

You will also include it on your MO return as your home state taxes all income from all sources worldwide.

When filing, you will fill out your IL non resident return first and claim a credit from IL on your MO return for taxes paid to another state.  Be sure you do IL FIRST so you have the correct amount for the credit. 

Multiple States

File Non Resident State Return

[sam1965]

I cannot tell you Vanessa how much I appreciate your replies.

What about the case in which the lawsuit is in Illinois but I have never set foot in Illinois (for purposes related to the litigation). I have simply written reports while in Missouri?

[Vanessa A]

In IL, you actually do not have to be physically present for the income to be taxed IF you are providing business services, depending on how your earning of the income relates to the IL case, which it sounds like it is totally related to IL. So, if the source of income is coming from IL, even if you are not there, as long as you participated in an activity to earn that income, it is taxable to IL.  It appears as though they have chosen to use the words ALL income unless clearly attributable to only one state to further broaden the net of who has non resident income.  

Business income is income you earned or received from any activity that you took part in during the regular course of your trade or business. It does not include wages or other compensation you received as an employee. It includes all income (other than compensation) that may be apportioned by formula among the states in which you are doing business without violating the Constitution of the United States. All income (other than compensation) you received is business income unless it is clearly attributable to only one state and is earned or received through activities totally unrelated to any business you are conducting in more than one state. Business income is net of all deductions attributable to that income.  Schedule NR Instructions.