1. An Introduction to Multi-State Taxation
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An Introduction to
Multi-State Taxation

2. Emily Rook, CPP emilyrook@comcast.net
24th Illinois Statewide Payroll Conference "Be a Payroll Champion"

3. 24th Illinois Statewide Payroll Conference "Be a Payroll Champion"
Agenda
Nexus
Rules of Residency
Rules of Reciprocity
Resident / Non-Resident Taxation
Telecommuters
State Unemployment Insurance
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4. State Income Tax Withholding Requirements Considerations
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5. For Which State Must You Withhold?
Basic rule of thumb
Withhold taxes for the state where services are performed
Three rules
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6. For Which State Must You Withhold?
We Could Only Wish!
NO STATE INCOME TAX!

7. For Which State Must You Withhold?
Residents Are Subject to the Laws of That State
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8. For Which State Must You Withhold?
Nexus
Business connection
Operations in the state
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9. For Which State Must You Withhold?
Nexus
Employee will still have a personal income tax liability even if the company does not have nexus
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10. Withholding Rule No. 1: Resident
Is the employee a resident of the state?
Home state or work state?
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11. Withholding Rule No. 1: Resident
Residence
Domiciled in state?
Spend more than a certain number of days in state?
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12. Withholding Rule No. 1: Resident
Domicile
Property ownership
Bank accounts
Driver’s license/ vehicle registration
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13. Withholding Rule No. 1: Resident
Domicile
Voter’s registration
Presence of family
Membership
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14. Withholding Rule No. 1: Resident
Who is a resident?
State definition—AK
STATE DEFINITIONS OF A RESIDENT FOR INCOME TAX WITHHOLDING AK
Not applicable
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15. Withholding Rule No. 1: Resident
Who is a resident?
State definition—CA
STATE DEFINITIONS OF A RESIDENT FOR INCOME TAX WITHHOLDING CA
A person who is domiciled in CA or is in CA for other than a temporary or transitory purpose (as defined in Franchise Tax Board Pub. 1031). A person working on a contractual foreign assignment and in CA for no more than 45 days…
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16. Withholding Rule No. 1: Resident
Who is a resident?
State definition—NY
STATE DEFINITIONS OF A RESIDENT FOR INCOME TAX WITHHOLDING NY
A resident is an individual: (A) who is domiciled in NYS, unless: (1) the person does not have a permanent place of abode in NYS, has a permanent abode elsewhere, and spends no more than 30 days of the year in NYS; or (2) is in a foreign country or countries for at least 450 out of 548 consecutive days (approximately 15 out of 18 months)…

17. Withholding Rule No. 1: Resident
Who is a resident?
State definition—IL
STATE DEFINITIONS OF A RESIDENT FOR INCOME TAX WITHHOLDING IL
A person who is in Illinois for other than a temporary or transitory purpose, or who is domiciled in Illinois but absent for a temporary or transitory purpose during the year
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18. Withholding Rule No. 2: Reciprocity
Reciprocal agreements
Withholding only for the state of residence
Reporting wages only to the state of residence
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19. Withholding Rule No. 2: Reciprocity
Reciprocal agreements
Make it easier for the employee and employer
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20. Withholding Rule No. 2: Reciprocity
STATE RECIPROCAL WITHHOLDING AGREEMENTS IL
Residents of Iowa, Kentucky, Michigan, and Wisconsin are not subject to Illinois income tax withholding for wages earned in Illinois if Form IL-W5-NR, Employees Statement of Nonresidence in Illinois, is filed with the employer, likewise, Illinois employees working in any of those states will not be taxed there.
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21. Withholding Rule No. 2: Reciprocity
STATE RECIPROCAL WITHHOLDING AGREEMENTS IN
Residents of Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin are exempt form Indiana income tax withholding (likewise, Indiana residents working in any of those states will be exempt there). They should complete Form WH-47, Certificate of Residence. The reciprocity is not applicable to county income taxes.
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22. Withholding Rule No. 2: Reciprocity
STATE RECIPROCAL WITHHOLDING AGREEMENTS WI
Illinois, Indiana, Kentucky, and Michigan residents working in WI must provide a written statement to their employer certifying the place of residence in order for the employer to not withhold Wisconsin income tax. Form W-220 Nonresident Employee’s Withholding Reciprocity Declaration, must be filed with the employer. The reciprocal agreement with Minnesota was terminated 1/1/10.
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23. Reciprocal AgreementsWA VT ME ND MT MN NH MA OR NY ID WI RI SD MI CT WY IA PA PA OH NJ NE IL IN NV DE UT CO WV VA MD CA KS MO KY DC NC TN AK AR OK SC AZ NM GA MS AL LA TX FL HI
None
N/A
Yes 23

24. Reciprocal Agreements Cautions!
Reciprocal treatment is not automatic!
Employee must provide certificate of nonresidence.
No certificate means employee is to be taxed following the work state rules.
Reciprocity does not apply to local taxes.
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25. Withholding Tax Reciprocity
Pennsylvania
Employee performs services in OH, PA, WV
Ohio
West Virginia
Employee lives in WV
Report all wages on W-2 for West Virginia and withhold West Virginia tax from all wages. Employee has submitted nonresident forms for PA and OH.

26. Withholding Tax Reciprocity
Pennsylvania
Employee performs services in OH, & PA
Ohio
West Virginia
Employee lives in WV
Employer does not withhold any state tax. Employee will owe state tax to WV.

27. Withholding Rule No. 3: Resident/Nonresident Taxation
State in which the services are performed will almost always require withholding
From non-residents who come into the state to work
Exceptions
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28. Withholding Rule No. 3: Resident/Nonresident Taxation
Exceptions:
Reciprocity
Military Spouse
Amtrak Reauthorization
# Days $$
Disaster Relief Work
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29. Withholding Rule No. 3: Resident/Nonresident Taxation
Arizona and California
With nexus in both states
CA resident works in AZ for 60+ days
AZ withholding required
CA withholding required with credit for AZ withholding
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30. Withholding Rule No. 3: Resident/Nonresident TaxationST
Residents: Withholding Required on Services Performed Out-of-State (and W-2 Wage Reporting Requirement), If Nexus
Nonresidents: Withholding Required on Services Performed In-State AL
Yes (report wages), unless withholding is taken for the state where services are performed (do not report wages).
Yes
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31. Withholding Rule No. 3: Resident/Nonresident TaxationST
Residents: Withholding Required on Services Performed Out-of-State (and W-2 Wage Reporting Requirement), If Nexus
Nonresidents: Withholding Required on Services Performed In-State CT
Yes, allowing a credit for withholding taken for the state where services are performed (report wages).
Yes. Note: Withholding is not required for nonresidents assigned to a primary work outside CT…
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32. Withholding Rule No. 3: Nonresident Taxation
New York
Nonresident working in NY, no withholding required if work is 14 days or less
Training days do not count
Form W2: NY wages in box 16 must match box 1 wages
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33. Withholding Rule No. 3: Resident Taxation
New York
Resident working outside of NY
If employer nexus in NY
Withhold NY, allow credit for state taxes withheld where services performed
Form W2: NY wages in box 16 must match box 1 wages
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34. Withholding Rule No. 3: Nonresident Taxation
Illinois
Nonresident working in IL
No withholding if employee’s base of operations is located out- of-state
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35. Withholding Rule No. 3: Resident Taxation
Illinois
Resident working outside of IL
If employer has nexus in IL
Yes, if employee is reported to IL for UI
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36. Withholding Rule No. 3: Resident/Nonresident Taxation
Employees working in multiple states without reciprocity
Wages earned in each state must be examined
Withhold the work state’s tax
May need to consider resident state
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37. Withholding Rule No. 3: Nonresident Taxation
States may use a threshold:
Less than a number of days
$$ Amount
Other
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38. Withholding Rule No. 3: Resident Taxation if Nexus
States use a variety of rules:
Yes!
Yes, Unless withholding is taken in state where services are performed
Yes, Allowing credit for state withholding taken where services are performed No
‘Other’
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39. Withholding Rule No. 3: Resident/Nonresident Taxation
Telecommuters
Withhold income tax for the state in which an employee performs services
“Convenience of the Employer Test”
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40. Withholding Rule No. 3: Resident/Nonresident Taxation
Telecommuters
New York Nonresident
May apportion income based on the number of days that services are actually performed both inside and outside NY
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41. Withholding Rule No. 3: Resident/Nonresident Taxation
Telecommuters
Home office
Primary factors
Secondary factors
Other factors
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42. Withholding Rule No. 3: Resident/Nonresident Taxation
Proposed federal legislation – The Mobile Workforce State Income Tax Simplification Act (H.R & S. 386) 42

43. Withholding Rule No. 3: Resident/Nonresident Taxation
Model law – Model Mobile Workforce Statute
North Dakota adopted
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44. Resident and Non-Resident Withholding
Rhode Island
Connecticut
Employee lives in CT
Employee performs services RI
RI requires withholding from non-residents that work within its border. CT requires withholding from wages of their residents for services performed in another state (assuming nexus), allowing credit for the other state’s withholding. Withholding should be taken first for RI. 44

45. Employee Withholding Allowance Certificates
Federal rules
Form W-4
Some states accept Form W-4
Some states have own certificate

46. Employee Withholding Allowance Certificates
State rules
Form name
Accept federal form?
Default status if no state form submitted
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47. 24th Illinois Statewide Payroll Conference "Be a Payroll Champion"
Accepts Form W-4 WA VT ME MT ND MN NH OR NY MA ID WI RI SD MI CT WY IA PA OH NJ NE NV IL IN UT DE CO WV VA MD CA KS MO KY DC NC TN AR OK SC AK AZ NM GA MS AL LA TX HI FL
Accepts W-4 No
No income tax
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48. Employee Withholding Allowance Certificates
Military Spouse Residency Act
Servicemember’s spouse income taxable in home state not resident state
Spouse must claim exemption from work state SIT withholding
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49. Military Spouse Residency Relief ActWA VT ME MT ND MN NH OR MA ID WI NY RI SD MI CT WY IA PA PA OH NJ NE IL IN NV UT DE CO WV VA MD CA AK KS MO KY DC NC TN AR OK SC AZ NM GA MS AL LA TX HI FL
N/A
New/revised form
Use W-4 No 49 49

50. State Unemployment Insurance Tax Considerations
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51. 24th Illinois Statewide Payroll Conference "Be a Payroll Champion"
SUTA Coverage
SUTA framework
Employment relationship
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52. Employees Working In More Than One State
Are the Services Localized?
Services are localized within a state if services performed outside the state are incidental
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53. Employees Working In More Than One State
Are the Services Localized?
If an employee’s services are localized, the employer is subject to the Unemployment Insurance Law of that state
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54. Localization of Services
Wisconsin
Based in Wisconsin
Performs most services in Wisconsin
Indiana
Illinois
Incidental service in Indiana
Directed from Illinois
Report unemployment to Wisconsin as most of the services are performed in Wisconsin and the services in Indiana are temporary.

55. Employees Working In More Than One State
Does the employee have a base of operations?
Where an employee regularly works in more than one state, the employer should see if the employee has a base of operations in one of those states
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56. Employees Working In More Than One State
Does the employee have a base of operations?
A base of operations can be the place where an employee reports to work
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57. Employees Working In More Than One State
Does the employee have a base of operations?
If the employee has a single base of operations in a state where he or she works, that state’s Unemployment Insurance laws govern
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58. Base of Operations Report unemployment in NV. Based in NV
Performs Services in all Three States
Nevada
California
Arizona
Lives in CA
Report unemployment in NV.
Directed
from AZ

59. Employees Working In More Than One State
Is there a place of direction or control?
If the employee’s work is not localized and there’s no base of operations, determine if there is a place of direction or control in one of the states where the employee performs services
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60. Employees Working In More Than One State
Is there a place of direction or control?
A place of direction or control refers to an employer’s facility from which it exercises or can exercise immediate control over the employee’s services
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61. Direction and Control Report unemployment in FL.
Performs Services in all Three States
Georgia
Alabama
Lives in Alabama
Directed from Florida
Report unemployment in FL.
Florida

62. Employees Working In More Than One State
What is the employee’s state of residence?
If none of the previous factors can be applied, the state of the employee’s residence has jurisdiction if the employee performs some work there.
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63. Report unemployment to LA.
Residence
Performs services in OK and LA
Oklahoma
Texas
Louisiana
Directed from TX
Lives in LA
Report unemployment to LA.

64. 24th Illinois Statewide Payroll Conference "Be a Payroll Champion"
SUI Taxable Wages
Each state’s taxable wage base must be at least equal to the FUTA taxable wage base
$7,000
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65. Transferability of Unemployment Wages
Employee earns $15,000 in WI
Employee moves to IN and earns $25,000
IN taxable UI wages = $0
WI UI wage base = $14,000
IN UI wage base = $9,500
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66. Transferability of Unemployment Wages
Employee earns $15,000 in IN
Employee moves to WI and earns $25,000
WI taxable UI wages =
$4,500 ($14,000 - $9,500)
IN UI wage base = $9,500
WI UI wage base = $14,000
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67. 24th Illinois Statewide Payroll Conference "Be a Payroll Champion"
SUI Taxable Wages
SUI wage transferability
Exceptions – LA, MN & MT
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68. SUI Wage Bases $7,000—$10,000 $10,000—$20,000 $20,000—$30,000VT ME ND MT MN NH MA OR NY ID WI RI SD MI CT WY IA PA OH NJ NE IL IN NV DE UT CO WV VA MD CA KS MO KY DC NC TN AK AR OK SC AZ NM GA MS AL LA TX FL HI
$7,000—$10,000
$10,000—$20,000
$20,000—$30,000
$30,000—$40,000
$7,000
> $40,000 68

69. Compliance and Mitigation
Employer research!
Employer is responsible for knowing where employee is.
Employer is responsible to have proper forms completed.
Withhold, deposit and report based upon state rules where withholding and reporting is required.
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70. An Intro to Multi-State Income Tax
Q & A
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71. An Introduction to Multi-State Taxation
24th Annual Illinois Statewide APA Payroll Conference “Be a Payroll Champion”
Thank You for Attending!
An Introduction to
Multi-State Taxation