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Mark Pieper's headshot
Mark Pieper Director, SCS Finance

State Income Tax implications of providing professional services in different states?

Asked on Sept. 1, 2015

Any controllers/CFO's in the consulting industry - just want to ask how you handle employees state tax withholdings if they work with clients in multiple states during the year. I think most of the large firms tell their employees to file personal income tax filings with each state in which they worked greater then some determined time frame such as 2 weeks. From a payroll perspective they just withhold the taxes in the state where the employee is a resident. How about compensatory issues with employees around different state tax rates?

Answers

Regis Quirin's headshot
Regis Quirin Director of Finance • April 26, 2012

This situation is when you see the value of a PEO supplier. In a previous role I worked with a PEO leasing company. Wherever the employee worked, the appropriate state taxes were deducted. I believe the policy is dictated by the state and all states have different policies and corresponding rates. There is not one answer that I have found.

Regis Quirin's headshot
Regis Quirin Director of Finance • April 27, 2012

Hmmmmm. I have done more research on this issue. My answer was correct, but more information should be provided. Please expect a blog post from me regarding the complexity of the situation, posted on the Proformative site this weekend.

Joan Varrone's headshot
Joan Varrone CFO • April 28, 2012

I don't see this as any different from employees who travel a lot for their work including staff providing professional services in various states which may include working multiple weeks at a time Personal tax is based on their state of residence.

Wayne Spivak's headshot
Wayne Spivak President & CFO • April 28, 2012

It also depends on whether your consultant is a 1099 or W2 employee. Many states are playing games and trying to make a determination of nexus for both the employee and the company.

Keep meticulous records.

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