CA telecomuter/FTB experts

[mwrightea]

I need help from all California experts.  My client has a company in Colorado they recently received a letter from FTB about an employee that telecommutes for their company in Colorado from the employees home in California. This was news to me (the employee in CA).     They have no business, sales, property, equipment, advertising, rent or anything else in California.    My understanding is the employee moved to California and my client wanted to retain the employee's particular skill set.  They do not pay anything to the employee other than wages.  The company uses a payroll company and has paid all the CA SWT & OASDI etc on this employee.  This employee uses their own computer and logs into my clients web portal every day and preforms via web, duties in Colorado.

FTB is requesting that a FTB4694 be filled out regarding if they need to file a State Tax return in CA.  I do not believe that my client has Nexus in CA. I am leaning toward part 2 of the 4694 No filing requirement.  Clients answers to part 2 are all NO's.  Am I wrong? Is this a can of worms,  better addressed by an attorney?   

  

[JRS]

I had a similar situation a few years ago with Ca employee working for a Florida employer.  The employer sent a letter to FTB and never heard another word.  Whether they filled out the form you mentioned I don't know, but all taxes and SDI were paid.

[Lee B]

3 minutes ago, JRS said:

.I had a similar situation a few years ago with Ca employee working for a Florida employer.  The employer sent a letter to FTB and never heard another word.  Whether they filled out the form you mentioned I don't know, but all taxes and SDI were paid.

In my experience, the CA FTB is probably the most aggressive state revenue agency in the country.

You can try claiming your client doesn't have nexus and maybe it will slide by.

My opinion is that they do have nexus.

[Lion EA]

I deal with a lot of NY issues, and YES an employee in a different state working as an employee for a NY employer DOES create nexus for the employer in that other state. Judging from my CA clients, CA is as aggressive as NY. You can try. Good luck.

Most states now use a single/sales criteria for nexus, unless it benefits them to use Sales/Employees/Property instead.

[Max W]

If the CA payroll exceeds $56K, then there is nexus.  

• "The amount paid in California by the taxpayer for compensation, as defined in subdivision (c) of R&TC 25120, exceeds the lesser of $50,000[¹] or 25 percent of the total compensation paid by the taxpayer.
• For the conditions above, the sales, property, and payroll of the taxpayer include the taxpayer's pro rata or distributive share of pass-through entities. "Pass-through entities" means partnerships, LLCs treated as partnerships, or S corporations."

https://www.ftb.ca.gov/businesses/Doing-Business-in-California.shtml

The original $50K in 2011 jas been indexed for inflation.

 

 

[mwrightea]

Thanks all for your replies.

[mwrightea]

One more question, is the index for inflation updated as of 01/01/2018 ?

[Max W]

On 6/8/2019 at 5:38 PM, mwrightea said:

One more question, is the index for inflation updated as of 01/01/2018 ?

$58,387

page 19 A, 4

https://www.pillsburylaw.com/images/content/1/2/120128.pdf

[Roberts]

I've had demands from Colorado, Washington and Oregon to pay taxes in those states for offices and employees that don't exist.

As an investment broker, we had a single client in Vermont and their regulator wanted us to pay $500 per year to be licensed in the state. I told him that the client moved there, we didn't solicit business in their state and every other state offers an exemption for a number of clients that do that to avoid paying the fee (we generated maybe $150 in commissions from her in a year). They said they would look into it. Oddly the exact same day we received a fax from the regulator wanting a campaign donation for the new position he was campaigning. We didn't make a donation and their determination was that we needed to be licensed.

[Medlin Software, Dennis]

Nexus exists, taxes are owed, employer has a CA office (with all the rights and responsibilities) in the employee's home.  The duties are physically performed in CA.

Employer likely is not covered for WC and liability since they likely have not counted/listed their CA location.

[mwrightea]

Thanks for the cite and information Max W. My client is under all the thresholds.  We will see what FTB does with information.

Once again, I appreciate the information from all.

[Medlin Software, Dennis]

"The company uses a payroll company and has paid all the CA SWT & OASDI etc on this employee."

The employer has already submitted to CA jurisdiction via withholding CA items.  If the employer wanted to make a case for no nexus, they should not have registered with CA and withheld for CA.

[Richcpaman]

This may be unpopular...

But I would have your client fire the employee, and make them a subcontractor.

Then, there is no nexus.

Maybe that will not completely get CA out of your clients pocket, but it is a start.

And yes, your client has nexus.

Rich

 

[Medlin Software, Dennis]

10 minutes ago, Richcpaman said:

This may be unpopular...

But I would have your client fire the employee, and make them a subcontractor.

Then, there is no nexus.

Maybe that will not completely get CA out of your clients pocket, but it is a start.

And yes, your client has nexus.

Rich

 

Will not resolve the issue pre fire date, but will lessen liability moving forward.  Remote home offices can work, but it takes specialized setup and monitoring to keep the employer liability to a level they can afford compared to the cost of a contractor or an in house employee.  CA office work is reasonable for worker's comp, but one also needs to look at straight business liability on the home, as employer can have defense costs and/or liability should anything happen on the premises which has to do with work or the work space.  Employee trip going to the kitchen for lunch, delivery person trip on the step while leaving a package, kids have an accident in the office, etc.  CA also has some rules about business expense reimbursement, in addition to all of the other employee regulations.

The other issue of firing and contracting, is the employer will have to be even more vigilant about not invoking anything which can be seen as control over the contractor, because of the prior employee status.  On its face, the switch will raise red flags if the status is ever contested.  Would have been better to have happened before the move so there was never any remote employee status.