Do You Serve California Clients From Another State? Watch out for CA Tax!
As a reminder California taxes service and intangible providers (including individuals) based on what is known as market based sourcing.
If a California nonresident receives income for services from a California company, even if that nonresident never physically worked or lived in California during the tax year, such income may be California-source income taxable by California. This is based on a new law changing sourcing of income in 2013 and often surprises individuals and businesses.. When an independent contractor or business entity is engaged in business within and outside of California, that services income is sourced to the location where the independent contractor’s customer received the “benefit of the services.” In many cases, the location of the benefit is the client’s address.
Many taxpayers living and working outside of California, but providing a service to a business in California are surprised to learn they may have a filing requirement and owe tax to California despite never having physically worked or lived here.