Tax Law (Questions About Taxes)/Tax Costs for Employer
Thank you in advance for your expert advice.
I currently work for a small corp in the state of PA. I'm looking to move to the state of CA next year and I'm interested in understanding the tax costs my current employer would be responsible for should she keep me on as an employee completing the same job I currently complete, but from a home office in CA. Currently no business is completed in the state of CA and I do not forsee business being completed in Ca in the next year.
Part 2 to this question is should my employer decide to begin completing business in CA since I would be telecommuting from home what then would be the tax implications and/or the approach the would involve the lowest tax amount (LLC versus incorporating in CA).
It is universally accepted that having employees in a State is one of the criteria for "Doing Business". As in: if a corporation is doing business within a state it is obligated to comply with the rules of that state including pay taxes in that state.
There are many ways to slice the tax ratio.
One common way is by gross revenue per state, but the state of California see it differently. They also can calculate it based either number of employees per state, or by average wage per state, whichever works best for them.
So if your employer has a total of 4 employee, and one of them moves to California to work, the Corporation will be required to file as a foreign corporation, pay the minimum franchise tax of $800 in addition to filing fees. Calculate the state of California Corporate tax at 8.8% of 25% of the net taxable revenue. And pay all of the payroll taxes on you as an employee.
California will want to tax 100% of the revenue generated in California along with that percentage of all revenue generated outside of PA, since CA and PA are now "tax partners" on your employers corporation, and will share commensurately.
There are better options.
It all is up to your employer if they want to reduce their total tax burden. You could work in CA under a separate entity, still filed in CA, but that entity could just break even. Separation is good. Even if that entity starts cash flowing in CA, it could expense to PA most or all of its net, reducing the CA tax again.
Now the question is, can we do even better, and yes it can be done.
Have them give me a call