Out of state employee question

[mingoglia]

I typically keep my threads Prius related but figured with the large member base, perhaps someone could answer this question.

My business is located in Arizona and I'm in the process of writing an offer letter for a potential employee who lives in Nevada. To make things easier I was initially thinking I could pay her as a contractor but found out that in order to get her and her kids on my United Heath Care she had to be an actual employee.

An initial call by my book keeper to "the state" (not sure who she called) revealed that our new hire would have to pay Arizona state tax. This doesn't sound right to me. I would have thought she would only be responsible for the tax in her home state (in which Nevada doesn't have state tax). Does anyone have any insight on this?

Thanks!

Mike

[galaxee]

yep, that's about right. i pay tax to the state where i get my income. my home state lets me claim a tax credit for that amount, so i don't become liable for double when filing in 2 states.

since NV doesn't have a state tax at all, i'm not sure how one would best handle that situation.

[ceric]

She will have to pay Arizona state tax unless you set up a branch in NV, and hire her as employee of that branch. More paper works on you! Or, you can always give her high salary to compensate for the state tax she has to pay Arizona. Less money for you! So, either
- more paper works for you + cost of setting up branch and report tax annually to NV
- less money for you (pay her higher)
- less money for her (she gets less after tax)
One of the three choices.

[mingoglia]

Now if she were to pay Arizona state tax would she get the entire amount back at the end of the year because she was a resident of another state? Could she file the state tax form when hired but claim she's exempt since AZ isn't her state of residence?

[galaxee]

here's a bit from the nonresident arizona tax form instructions:

Are You Subject to Tax in Arizona?
You are subject to Arizona income tax on all income derived
from Arizona sources. If you are in this state for a temporary
or transitory purpose or did not live in Arizona but received
income from sources within Arizona during 2007, you are
subject to Arizona tax. Income from Arizona sources includes
wages, rental income, business income, the sale of Arizona
real estate, interest and dividends having a taxable or business
situs in this state, or any other income from an Arizona
source.

[Boo]

Mike,

I suspect you need info from people with specific knowledge of Arizona and Nevada state tax laws.

For instance, in New York City, if a non-resident works here, her income earned here will be subject to New York City commuter income tax. It wouldn't matter if she were a resident elsewhere in New York State or a Nevada state resident. If she's a non-NYC resident and works in NYC, the income earned here will be subject to NYC income tax, specifically, the NYC commuter income tax.

EDIT: Yes, e.g., see galaxee's post about Arizona nonresident tax form.

[JimN]

Mike, maybe you should move your business to Nevada.

[mingoglia]

Originally Posted by JimN

Mike, maybe you should move your business to Nevada.

If I did I'd probably spend too much time at the Spearmint Rhino and end up divorced and out of business.

[mingoglia]

Originally Posted by galaxee

here's a bit from the nonresident arizona tax form instructions:

Are You Subject to Tax in Arizona?
You are subject to Arizona income tax on all income derived
from Arizona sources. If you are in this state for a temporary
or transitory purpose or did not live in Arizona but received
income from sources within Arizona during 2007, you are
subject to Arizona tax. Income from Arizona sources includes
wages, rental income, business income, the sale of Arizona
real estate, interest and dividends having a taxable or business
situs in this state, or any other income from an Arizona
source.

Originally Posted by Boo

Mike,

I suspect you need info from people with specific knowledge of Arizona and Nevada state tax laws.

For instance, in New York City, if a non-resident works here, her income earned here will be subject to New York City commuter income tax. It wouldn't matter if she were a resident elsewhere in New York State or a Nevada state resident. If she's a non-NYC resident and works in NYC, the income earned here will be subject to NYC income tax, specifically, the NYC commuter income tax.

EDIT: Yes, e.g., see galaxee's post about Arizona nonresident tax form.

I appreciate the responses and the leg work. Thanks a lot. Does anyone from California know if a similar rule exists there? The reason I'm asking is her current employer is located in CA. She claims she is not currently paying CA tax.

Mike

[eagle33199]

State Income Tax Returns - Tax Tips from TurboTax

Thats a good place to start. The basic rule is you file a tax return in each state you live or work in. Since the law differs across state borders, it's hard to tell right off the bat what needs to happen in a particular situation. Generally speaking, each state has a resident and non-resident tax form to fill out, and there are places to fill in the amount of tax paid to another state.

If she is currently employed in California and living in Nevada, and her employer doesn't have a branch office in Nevada, then i would guess that she is (either unintentionally or intentionally) breaking the law by not paying taxes in California. Again, thats just a guess because i can't find anything specific in my 5 minutes of google searches.