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Q: Income Taxes for multi-state freelance work. ( Answered 5 out of 5 stars,   1 Comment )
Subject: Income Taxes for multi-state freelance work.
Category: Business and Money > Small Businesses
Asked by: nab78-ga
List Price: $5.00
Posted: 03 Oct 2006 09:51 PDT
Expires: 02 Nov 2006 08:51 PST
Question ID: 770474
I am a freelance graphic/web designer living in California. This year,
I have done work from my home office for people in Illinois,
Connecticut, Missouri, and Oregan. The work has been for services,
such as designing a website, and the amounts I have invoiced are
relatively small (under $1000 generally). Do I have to pay income tax
in those other states on the amounts I made from clients there? Thanks
for your help.
Subject: Re: Income Taxes for multi-state freelance work.
Answered By: neurogeek-ga on 12 Oct 2006 12:06 PDT
Rated:5 out of 5 stars

Thanks for asking this question.  As a freelancer, I assume that you
aren't on the payroll, but recieve payments directly, and file a
Schedule C to report that income.  I should also remind you that
Google Answers can provide internet research, but is not intended to
substitute for advice from a professional tax preparer or CPA.

You may have heard about Illinois resident Michael Jordan's tax bill
from the State of California, after he led the Chicago Bulls to the
1992 NBA championship over the Lakers in Los Angeles.  California
imposes taxes on nonresidents for income received from sources within
California.  Even businesses which don't travel to California, but
have an "economic nexus" in their clients or customers there, may be
subject to the nonresident tax.

A representative of the State of Illinois wrote:
"The United States Constitution restricts a state's power to tax
nonresidents. The Due Process Clause requires that there exist some
minimum connection between a state and the person, property, or
transaction the state seeks to tax. (Quill Corp. v. N. Dakota, 504
U.S. 298 (1992)). The Commerce Clause requires that a state's tax be
applied only to activities with a substantial nexus to the taxing

I suspect that your consulting business, with small amounts billed and
with no physical presence outside of California, isn't large enough to
have an "economic nexus" in any other state.  Furthermore, California,
like other states, allows a credit for tax paid to other states on the
same income, so that many individuals can avoid paying income tax to
two states.  You'd likely end up paying no more than California income
taxes to those other states.

MSN Money "Can you be Hit by the 'Jock Tax'?

Tax Foundation research on the 'Jock Tax'

State of Illinois ruling

I looked into each of the states that you mentioned, to see whether
they tax income of nonresidents or businesses with clients in their
state.  The following is a summary of the relevant forms and

Form 540, Schedule S, Tax paid to another state.  Code 187.
Schedule R, Apportionment of Business Income among States

Filing Requirements
Tax Forms

Nonresident Requirements

Tax Forms
Nonresident requirements 
(Filing not required if Missouri income under $600, or less than
personal exemption.)

Taxable Income Discussion
nab78-ga rated this answer:5 out of 5 stars
Wow - thank you so much for the well-researched answer. The 'jock tax'
is a particularly interesting facet of American tax laws. Thanks

Subject: Re: Income Taxes for multi-state freelance work.
From: kriswrite-ga on 03 Oct 2006 13:18 PDT
No, you don't need to pay state income tax...except for the state you live in.


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