State income tax for non resident outside salepeople? (Missoula: sales, real estate)

[yetiyeti]

My husband has preliminarily accepted a position with another company. We currently live in WA state. The family will stay here, but hubby will reside in Missoula for the majority of the time. He is in outside sales, and this position is a 12-18 month stint.

His principal residence will still be in WA state. New employer has never done business in MT before. They are an out of state corporation that has offices across the country (MT not being one of them). Hubby's office will be a virtual office. He will see clients face to face as well.

Has anyone been in a similar situation? I am curious if you had to pay MT state income tax as a non resident, where your employer was also a non resident.

We just realized the possible tax liability. We currently pay no state income tax in WA state. Experiences anyone can share about this is greatly appreciated!

[bigtrees]

Assuming your are planning on being legal (highly recommend) and not trying to commit tax fraud, the income your hubby generates in Montana is taxable income for the state.

"If you reside in Montana or are a non-resident employer who pays wages for services performed in Montana, you are required to withhold Montana income tax." http://mt.gov/revenue/formsandresour..._Tax_Guide.pdf

You can read the Montana Department of Revenue publications for more information.

[bigtrees]

The other bit of information I can share is the IRS considers the principal residence to be the one you're living in, which may be away from your regular home. So for the IRS, they will consider your hubby's temporary residence in Missoula to be his principal residence for tax purposes, and your house in Washington your primary residence.

[yetiyeti]

Hi, thanks for your input. Being "illegal" didn't enter our minds at all. Adjusting the situation within the requirements to benefit us, however, does enter our minds.

I've read the state website ten times over yesterday, including the actual forms and it still isn't 100% clear.

Also for those who think that they are automatically liable for state income tax, there is a list of excluded cases/employees that you can reference. Maybe there are some people who have been accidentally paying taxes when they didn't need to? Certain exclusions on the list isn't 100% clear either, but there are some clear examples of exclusions.
http://mt.gov/revenue/forbusinesses/...nttaxchart.pdf

Are there any salespeople out there in a similar situation that can share their experiences?

[yetiyeti]

Isn't principal residence the same as primary residence? So I thought. We plan on keeping our WA state house, the family will still live in WA, hubby will come home every 4th week. I have read that some states where there is state income tax generally use IRS standard to determine how state income tax is collected, but not necessarily. Also, the definitions are not necessarily uniform.

[bigtrees]

I think this sums it up pretty accurately:

"Part-year residents and nonresidents are taxed on all Montana source income that is derived from or connected to Montana sources."

See Department of Revenue - State of Montana

The link that you provided shows which employers are exempt from withholding income tax - but it doesn't say that a particular profession is exempt from paying tax. For example, real estate brokers are not required withhold income tax (on behalf of agents) but real estate agents are required to pay state income tax.

You can also reference the Montana Individual Income Tax Form 2EZ. The first page of the booklet reads:

"Am I required to file a Montana individual income tax
return?

If you are a resident, nonresident or a part-year resident, you have to file a Montana individual income tax return when you have Montana source income and your federal gross income, excluding unemployment compensation, is
equal to or greater than the corresponding amounts that are identified in the following chart."

So it looks to me that salespeople temporarily located in Montana are required to pay Montana income tax on any income initating from Montana sources.

[yetiyeti]

Bigtrees, thanks so much for taking the effort to respond. The exemption chart (#1-#32) describes the type of wage earner who is exempt from state income tax. The list generally doesn't describe the type of employer who is exempt.

The information for Employers says they must withhold their employee's taxes whether they are a resident employer or non resident employer.

The information for Individuals regarding tax liability indicates:
"Montana residents are taxed on all income, regardless of source, except that income which is statutorily exempted from taxation. Part-year residents and nonresidents are taxed on all Montana source income that is derived from or connected to Montana sources."
Nowhere on the website is there clarification of these two combinations:
- non resident employer
- non resident employee

However, upon googling "Public Law 86-272", there is little known loophole that exempts a corporation's tax liability in the state they are a non resident of. This law overrides state level requirements. As a result, the corporation's salesperson who solicits business for them in the income tax collecting state can also possibly be exempt from paying such taxes as well.

This entire topic has become facinating to me. Apparently, interstate commerce with or without a Nexus presence is more common than most people know - multi state corporations doing business outside their principal state as a non resident, using resident and non resident employees/wage earners, and the states that impose such tax implications when the corporation or wage earner already is liable for state income tax in their resident state. This need is what resulted in Public Law 86-272.

It does seem a little unfair though, that while Montana requires income tax to be paid by part time non resident wage earners for services performed in Montana, they also impose Montanan residents to pay MT state income tax on money they earned outside of Montana (in which that state probably imposes their own income tax as well, depending on the state). As a Montanan resident in that situation, I would be upset having to pay income tax twice.

[bigtrees]

Sounds like you need a CPA or tax attorney. When you start to cite federal interstate commerce laws and nexus, then you are getting beyond my understanding.

I'm a Washington state resident and my wife was looking at doing a virtual job with a company based out of Arizona. I contacted the Arizona Department of Revenue, described the potential work agreement, and found that she would be required to pay Arizona Income Tax even though she was a non-resident of Arizona.

You haven't said what kind of salesmanship your hubby is in. If he is selling something that is not connected to or derived from Montana, he probably would be exempt from paying Montana income tax. (i.e., if he was selling mortgages to people in Georgia.) But if he is selling cars or products door-to-door, I think that income would be connected to Montana. Your original post said he would see clients face-to-face, so it sounds like that would be connected to or derived from Montana.

A CPA can tell you better.

[yetiyeti]

Now that I realize that this situation is far more complex, I definitely would be consulting with a tax attorney. Bigtrees, have a cursory look into Public Law 86-272. Google it and see if it can help your wife's situation. We as WA state residents, although do not pay "state income tax", we are taxed in other ways that funds our state (high sales tax as one example). Effectively we do pay state income taxes, but in an indirect way. It's hidden under other things.

Good luck with the AZ opportunity. I would highly suggest that you also talk to a tax attorney. The state Dept of Revenue's agenda is to collect as much as possible. They won't likely tell you about any loopholes. That would be detrimental to them.

[bigtrees]

Originally Posted by yetiyeti

Bigtrees, thanks so much for taking the effort to respond. The exemption chart (#1-#32) describes the type of wage earner who is exempt from state income tax. The list generally doesn't describe the type of employer who is exempt.

Take a closer look at the list that you provided. There's a column that says "State Income Tax Withholding." The various job descriptions (#1-#32) are either "Subject to state income tax withholding" or "Not subject to State Income Tax Withholding."

The list is a guide to employers on whether they need to withold taxes from the employee's paychecks. It doesn't say whether the actual position is tax exempt. For example, "Direct sellers engaged in the sale of consumer goods" do not have income tax withheld from their paycheck. That doesn't mean it's not taxable income - it still is taxable. But the employer is not required to withhold income out of the employee's paycheck.

Again - see a CPA if you want more clarification.