Congress Meddles with State Nonresident Taxation

In an interesting development which may rankle California (and other state) lawmakers, the House of Representatives has come up with a novel suggestion which would allow a state to tax nonresidents working in that state ONLY if the employee works in that state for more than 30 days in a calendar year.  If you like this one, write your Congressperson and express your favor regarding H.R. 1864, a bill known as the “Mobile Workforce State Income Tax Simplification Act of 2011.”

If this measure clears all of the usual legislative hurdles, an employee would be considered present and performing duties within a state for a day if the employee performs the preponderance of his duties within that state for that day.  And if an employee works in both his resident state and one nonresident state during one day, the employee is considered to have worked a preponderance of that day in the nonresident state.

And while we’re on the subject of California and some of its nonresident taxation proclivities, consider the recent Board of Equalization decision in the Appeal of Legend Plus Enterprises, LLC, in which this single member LLC organized in Delaware lost because the LLC couldn’t show that the LLC’s business was conducted outside of California.  The LLC’s sole member was a California resident, its tax return was filed with a California address, and the return was prepared by a California tax preparer.

The bottom line, apparently, was that the entity just couldn’t show that its member traveled outside of California to do his work, and even though all the LLC did was hold Texas real property, it was required to pay the minimum $800 tax to California.

It has been California’s rule for a while, now that in cases like this, even though nothing much is going on in California (other than the fact that one or more of the managing members lives there), the annual LLC tax is deemed due and payable!

And from our “no good deed goes unpunished” department comes word that poor bloke Christian Lopez – the guy who caught Derek Jeter’s 3,000th hit and gave the ball back to Jeter, will soon have the Revenooers on his doorstep – with their hand outstretched.

The issue (in the IRS’ thought process) is that the mere catch of the ball constituted receipt of income by Lopez – accession to wealth via the personal services of reaching up and snagging the sphere.   Considering that balls of this nature can be a bit valuable (Barry Bonds’ record breaking 756th career home run ball fetched over $750,000 in the marketplace) you can easily apply the highest Federal tax rate to determine how much Obama thinks Lopez owes.

Then comes the issue of the gift tax which would be due on Lopez’s generous and uncompensated gift of the ball back to Jeter!

O Tempora, O Mores!

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He may be reached at 831-7288, welcomes comments at jquinn@ashleyquinncpas.com, and invites readers to consider his other commentary at http://blog.nolo.com/taxes/.