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Multi-state taxation

Living, Working or Investing in Multiple States

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Taxpayers on the Go!

NY Filers Taxpayers who live, work or have real-estate in NY must file a NY resident or non-resident return. They may benefit from itemizing deductions for NY even if they can’t itemize for the IRS. The NY threshold to itemize is substantially lower than the federal threshold, making it easier to itemize for NY. The US standard deduction in 2021 for married filing joint was $25,100 and $27,800 for married seniors. In contrast, the 2021 NY standard deduction for married couples and married seniors was only $16,050.

Additionally, several deductions are allowed on the NY return which are disallowed or limited on the federal return. Your steep NJ real estate taxes are limited to a $10,000 deduction on the US return but are not limited on the NY return! A deduction up to $10,000 is allowed for college tuition for each eligible student.

These deductions are allowed for NY subject to 2% of your federal adjusted gross income:

  1. Unreimbursed employee expenses
  2. Tax preparation fees
  3. Investment/brokerage fees

Real estate in other states? Have a loss from real estate in other states? There are several reasons why one should file a non-resident return even when there is a loss in that state.

  1. The non-resident state may require that a return be filed based on gross receipts of the real estate investments, even when there is a net loss.
  2. The non-resident state may allow loss carryforwards. These losses will offset future rental income from the property. Upon the sale of the property, the losses will reduce the capital gain.

Credit on the resident return for taxes paid to other states Frequently overlooked!

  1. Make sure that sources of income/loss are correctly grouped on the resident return which may differ greatly from the IRS. This determines the credit for taxes paid to other states.
  2. The credit on the resident return for other jurisdictions should also include taxes paid to other cities, such as Philadelphia.

When filing in non-resident states, review the tax saving options which could be substantial. Your Google search isn’t a substitute for our years of experience with multi-state tax returns. Contact one of our tax professionals for guidance at (732) 777-1158 or  info@ua-cpas.com.

 

Handling Employees in Several States

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When you have employees who live in one state and work in another, things can get a bit tricky. Learn the basic rule — you generally pay taxes in the state where your team works, but it can get complicated.

Do you have employees who live in one state and work in another? You may run into this if:

  • Your company is located near a state border.
  • You have employees who travel to job sites in other states.
  • You have employees who work remotely.
  • You are expanding into new states.

Having some basic understanding of what happens will help you make the right decisions about classifying wages and avoiding penalties or amended filings later. Both state unemployment and withholding taxes should generally be paid to the employee’s work state, but there are exceptions; the twist is that state laws are quite literally all over the map. You may want to be familiar with the state legislation that applies to your team. Here are the basics.

Reciprocity agreements

Some states that border each other have entered into agreements related to allowing employees who live in one state but work in another, to have their withholding tax paid to the work state.For example, an employee who lives in Pennsylvania but commutes to southern New Jersey, for a job can have withholding tax paid to Pennsylvania rather than the work state. This is also known as courtesy withholding, and it means the employee can file one tax return each year, which helps simplify things. Have your employee complete a nonresidency certificate to excuse him/her from tax withholding in the work state. Let your payroll provider know that your employee has an agreement in place.

If there’s no reciprocal agreement, your employee will most likely have to pay both nonresident and resident state income tax. But luckily, most states grant a tax credit to avoid being taxed twice.

Each state may have its own twist on taxation, so it’s best to check the local situation and not make any assumptions.

The unemployment tax situation is usually straightforward. When an employee is working in multiple states or working remotely for a company based in another state, you withhold state unemployment tax only in the state in which the employee is working.

When it gets complicated

Today’s remote-work world means situations that were rare or unheard of a generation ago are now commonplace. That means more tax complexity.

For example, consider an employee who works from his log cabin in upstate New York, but your company is located in Maryland — you’ll have to pay all state taxes to New York because that’s where the work is actually being completed.

Or at that same Maryland company, you have an employee who needs to work in Maine temporarily for three months. For nine months, you pay taxes in Maryland, and for three months, you pay taxes in the Pine Tree State.

Most of this information is general. It can get complicated, and there are exceptions and special circumstances. Consult with a tax professional at Urbach & Avraham, CPAs  to review your cross-border workforce, and we’ll help you organize your payroll tax system accordingly.

Conducting Business in Multi-States

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Year-end is a good time to review all operations and to ascertain if you are doing business in additional states. No matter where your company is headquartered, there’s a good chance you conduct business across other state borders. How do taxes work in this situation? Learn about multi-state taxes  to ensure that your business is registered with each appropriate secretary of state, and collecting and submitting the proper taxes.

If your business is headquartered in one state, but you sell your products across the border, do you have to pay taxes in the recipients’ state? This answer depends largely on whether you have what is referred to as a “nexus,” meaning an establishment in the recipients’ state. So what is a nexus and what constitutes an establishment?

Any of the following might create a nexus in a given state:

  • A temporary or permanent office
  • A warehouse
  • A storage locker
  • A sales representative based in that state

The rules have a lot of subtleties, however, and each state may have slightly different interpretations of how the rules work, further complicating the issue. Take for example, New Jersey, which does a lot of cross-border business with New York and Pennsylvania. New Jersey says any of the following may create nexus:

  • Selling, leasing, or renting tangible personal property or specified digital products or services
  • Maintaining an office, distribution house, showroom, warehouse, service enterprise (e.g., a restaurant, entertainment center, business center), or other place of business
  • Having employees, independent contractors, agents, or other representatives (including salespersons, consultants, customer representatives, service or repair technicians, instructors, delivery persons, and independent representatives or solicitors acting as agents of the business) working in the state

Of course, regulatory changes and court cases can change this interpretation at any time. Indeed, the New York State Department of Taxation and Finance issues more opinion letters on sales tax issues than on all other state taxes combined. Many states are desperate for additional tax revenues and are very ingenious at identifying out-of-state businesses operating in their jurisdiction.

With 45 states imposing a sales tax, it’s essential you stay in touch with us to ensure that you’re in compliance. Contact one of our tax professionals at Urbach & Avraham, CPAs to review your multi-state tax situation.

Multi-state Staffing Firms Need to Multitask

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Multi-states

With more than three million temporary and contract employees working for America’s staffing companies, demand for other-than-permanent workers continues to stay strong.

One goal for many staffing firms involves multi-state expansion. Having a presence in more than one state acts as a buffer against a slowdown in one location; and it enhances the firm’s image, helping it pitch to large companies with multistate operations.

But staffing firms that expand across state borders need to multitask, and consider issues like whether they need to register with each state in which they’re active.

Here’s Why

In July 2015, international staffing services company Insight Global LLC sued competitor Collabera Inc. in New Jersey Superior Court. Global alleged that Collabera induced at least 12 former employees of the plaintiff to leave Global and work for Collabera in violation of their employment agreements.

It turned out that at the time Global filed the complaint against Collabera, the plaintiff firm was NOT registered or licensed to do business in New Jersey, as was required under the Private Employment Agency Act, or PEAA.

“All businesses that provide employment and personnel services must be licensed and/or registered in New Jersey in order to operate within the State,” according to the PEAA.

That apparently helped to nail the Court’s decision to dismiss Global’s suit, since “…if an employment agency, temporary help services firm, or consulting firm failed to prove licensure or registration, the entity cannot bring a cause of action in New Jersey state courts.”

Collecting fees in multi-states…

The wording indicates that the ruling may not be limited to voiding separation agreements and employment agreements. The court ruling also notes that the PEAA bars an unregistered company’s claims “for a collection of fees…”

When Crossing the Border…

Staffing services firms as well as all businesses should review the laws of the states in which they do business, and determine whether or not they are complying with registration requirements. Firms need to be aware that they may not be able to enforce contracts or collect fees if they are not registered properly in the states and major cities in which they operate. In addition to registering with the Secretary of State and Division of Taxation, staffing companies should handle other requirements in each state, including sales tax, worker’s compensation and disability insurance coverage.