Therapists Practicing in Multiple States - Opinions Please

Most of these lays were writing in the 1950s, correct? With Covid and technology, we know that things have changed.

I am seeing more and more of my practicing therapist clients helping others in multiple states. There are even apps and services matching patients to therapists all over the country.

Licensing is also a concern but providing advice on that is beyond scope. I'm worried about the income tax aspects of this.

To the best of what I understand, if a patient is sitting in a state and consuming the services there, the production is likely sourced to that state.

Do you take these clients on? Would you file 10 state tax returns, for example, for when they have multiple patients in those states? How do you handle this situation with you current clients or your inquiries?

You look up the nexus rules for each state.
Some source the revenue where the customer (patient) is located; others source it where the service provider (therapist) performs the service. Some states, even if the revenue is sourced there, have a de minimis threshold.
I'll take a 10 state client if they'll pay for the work.
If total revenue is only about $150K or so, it's not worth it.

Physical presence. Economic nexus. You have to identify the regs of each state. It is a PITA but utlimately, I narrow it down to what I view as the biggest PITA states. Some states have $1 threshold, so unless a client has substantial activities in those states, I sure as hell am not going to dictate they need to file--the client can decide after I state the facts.

Determine nexus rules first. This is the threshold that establishes the connection that allows the state to tax your client. Then determine apportionment rules for each state. For example, you assume that revenue is sourced to the patient's state. That is market based sourcing. There are other sourcing rules.

I never tell a client to not file. The statute of limitations does not run on returns that have not been filed, and now that we have digital storage of information, you can't guarantee that the state won't come knocking 20 years later. (I have seen this happen one time.)

Watch out for CA. CA seems to be taking the position that if your client receives a 1099 from a CA address, the income is sourced to CA. I don't understand this when none of the nexus thresholds have been met, but until this is challenged and overturned, I guess it is law. See Bindley for more.

https://ota.ca.gov/wp-content/uploads/s ... 053019.pdf

Physical presence. Economic nexus. You have to identify the regs of each state. It is a PITA but utlimately, I narrow it down to what I view as the biggest PITA states. Some states have $1 threshold, so unless a client has substantial activities in those states, I sure as hell am not going to dictate they need to file--the client can decide after I state the facts.

Im with you….. I do a lot of therapists. I don’t even ask where the patients live. I assume they are all in NC. The therapist receives many 1099s , all from insurance companies. Their income is well above then 1099s and the 1099s show no state connection.

If they got a contract with a state and it was clear, we would file. But generally, I’m not doing it unless clients has good reason to.

If they got a contract with a state and it was clear, we would file. But generally, I’m not doing it unless clients has good reason to.

I'm from Ohio, one of the best states to do business in. First $250,000 of business income allocable to the state is backed off under the small business deduction. I avoid clients that file CA and NY like the plague if I can, not worth the time due to how stringent and unnecessary all their compliance measures are. I can't believe CA gets away with charging LLC's $800 just to be registered with the state. Ohio is a one and done. You pay $99 one time!

Determine nexus rules first.

Agree, this is where you'd start.

Learn the basics of how service revenue is sourced...cost of performance vs the newer market based sourcing.

A really good CPE course might give you enough momentum to get started.

Then you'd want to determine filing obligations for the client based on each state that they have exposure to.

I have no problem with clients like these, however I have experience with multistate work. Bill for your time.

And I agree, in the current environment we need to be asking service businesses, including Sch Cs, for their gross revenue summarized by client location to determine other state filing exposure. It's been my observation that most practitioners don't do this.

Thank you all...

How do you apply expenses that are not state specific?

Do you allocate/pro-rate the "indirect" expenses (such as a home office deduction for a sole prop) and include 100% of the "direct" expenses (such as a license fee to the specific state)?

Most states require you to apportion the net income; not allocate the expenses.
Apportionment is by revenue, payroll and property factors. More and more it is just by revenue.

Most states require you to apportion the net income; not allocate the expenses.
Apportionment is by revenue, payroll and property factors. More and more it is just by revenue.

+1. Some states do double gross receipts/revenue as the appointment factor, some states only sales, some states sales/payroll/PP&E.

OK, yeah - I've seen that of course on 1120s tax returns. I didn't know that applied to individual (sole prop) income tax returns but now I see how that would make sense.

Thanks so much.