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Sales rep and state taxation

Technical topics regarding tax preparation.
#1
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A sales rep/employee lives in one state but flies/travels to different states in the course of his job. His W-2 is with the state he lives in and withholding is entirely in that state.

Does he have to file a tax return in every state he travels to in his job as a sales rep?

I suppose the same question would arise with an executive/employee who flies to different states in the course of his job. Should that person be filing with every state he/she flies to?
 

#2
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There is no quick answer. Most states do not apply tax if there less than 30 days, or 5% of income. But you would have to look at every state.
 

#3
jon  
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Nexus and what the definition in every state is even harder. Simple, but may not be true, pure engaging a customer, for a sale that is not completed then and delivered by the salesman usually does not create income in that state to him. Second, I think the nexus is created for the employer when that happens. If it creates nexus the employer processes it as such and if necessary includes the withholding on the employee returns.

One of the Big whatever CPA firms records employee's state withholdings based on if they had offices in that state. I do a return for a woman who is an insurance specialist for one of them and she lives in the midwest, but normally has five to ten other states' withholdings as she flies to where ever she is needed. This is for services...
 

#4
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Does an employer have a responsibility to withhold in another state or present a notification to the employee with the W-2 about filing in other states? The tax preparer sees a W-2 with no indication that the person traveled to another state for work. It could be any type of employee...an executive who travels a week a month to another location in the US, a sales manager who travels to another state(s) several times a month, etc.

Where does our responsibility begin/end when the client has a clean W-2 with no indication of activity any where else? Do we have to drill down and ask every client with a W-2 whether they traveled to any other state for even a day that was work related?
 

#5
JR1  
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Yeah, I'm calling this an employer issue, not an employee. IF/when the ER withholds tax from other states, then the ee is obligated to file, allocate, etc. I rarely see this outside of our own biz clients.
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#6
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I thought I would bump this thread as there are two other discussions going on regarding the issue of paying tax to different states when the employer has not allocated wages to different states for the employee on the W-2. There is one discussion about a minor league player and one by me about inquiring how to allocate wages to NC.

In light of this issue, I asked a friend of mine who worked in sales in the past for two different publicly-traded, mega-international companies. He traveled to different states, some more than others. He said he was never issued a W-2 that allocated wages to different states. All of his W-2 income was issued to the state of residency. He said all the sales reps were treated the same was. No allocation of W-2 income by their employer.

Is the employer negligent for not allocating wages based on states the employee was traveled in and was responsible for?

Would you calculate days in different states and file nonresident returns in all of those states for a sales rep or company executive?
Last edited by Taxalmancer on 3-Mar-2019 7:12pm, edited 1 time in total.
 

#7
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JR1 wrote:Yeah, I'm calling this an employer issue, not an employee. IF/when the ER withholds tax from other states, then the ee is obligated to file, allocate, etc. I rarely see this outside of our own biz clients.


Absolutely. If the employer doesn’t do it... it is NOT our job to do it and create a nightmare for the client.

I see this all the time. I file only in the states the employer withholds in or allocates to on a W2.

technically the employee is NOT authorized to work in other states as the employer more than likely isn’t registered there.
 

#8
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JR1 wrote:Yeah, I'm calling this an employer issue, not an employee. IF/when the ER withholds tax from other states, then the ee is obligated to file, allocate, etc. I rarely see this outside of our own biz clients.


I agree with this in most situations, including this post and the other thread on this.

One situation I did allocate wages was with an Illinois client - resident of IL and did all the work out of her home in IL. Her employer is headquartered in another state and improperly withheld tax for that state. I allocated all of the wages to IL and zero to the other state.
 

#9
HowardS  
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I just did a return for an employee of Grant Thornton. Allocation to 9 states on the W-2. What a pain, but this is how it is supposed to be done. If the employer doesn't allocate, I don't...not my job.
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#10
CathysTaxes  
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I've decided not to allocate my MiLB client. My research did reveal that the clubs do withholding in the various jurisdictions that they play in, perhaps they leave the minor league players alone. The kid earned $6300 for 140 games and spring training. A burger flipper makes more than that.
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#11
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Wouldn't a concern be the statute of limitations never starts for failure to file a nonresident return leaving the potential for a double state tax? If the state where the nonresident works in at some level catches up with him/her, the statute could expire for filing a credit with the resident state for taxes he now has to pay as a nonresident of another state.
 

#12
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I suppose we could put this issue back in our own laps. Let's say we have our practice in State A. Client B is 50 miles away in State B. You send a few staff to work on that client in State B for two weeks. Do you allocate part of their W-2 earnings to State B? I know when I worked with several large, regional CPA firms I never had my W-2 allocated to any state other than the home/resident state.

How about businesses in no-tax states such as NV, TN, FL that have employee(s) who go to surrounding states in their capacity as a sales rep, distribution manager, purchasing agent, etc? Our policy may be to prepare their returns based on the W-2 but do we have liability regarding this issue for not scratching beneath the surface?
 

#13
CathysTaxes  
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In my case, client would have a tax liability of $5 in Ohio, I have not checked to see if he's below the filing threshold. His team is based in Indiana, Ohio is a reciprocal state of Indiana. Illinois, the resident state is not, but he's filing. They played in Iowa and Wisconsin, reciprocal states of Illinois, Kentucky and Michigan, reciprocal states with both Illinois and Indiana, so I think we're ok and don't have to worry about statute of limitations for non resident filings.
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