Hi -

I was reading your blog entry about "Missouri Tax Fishing" and wondered about my situation. I am a sales manager for a company based in California. I live in CA and I have an office in CA. However, I travel to Colorado, Washington, Oregon, Idaho, Nevada, Utah, plus British Columbia & Alberta in Canada on business. The trips are to visit customers and work with local sales rep. I am out of state on these trips 30% - 40% of the time.

I am physically working in these other states. Does this mean I must file multiple state returns?

Thanks,

The proper way to handle this has a lot to do with whether you are a W-2 employee or self employed. From your description, it sounds as if you are a W-2 employee. Let me know if that is an incorrect assumption on my part.

With W-2 employees, your employer's payroll department should be keeping track of the amount of time you spend physically working in each different state (USA & Canadian) and reporting your annual W-2 wages accordingly. I have had some clients where they had several W-2s from their employers with several different State Wages amounts in as many as a dozen different states, including occasionally Canadian states.

As a W-2 employee, you are generally safe if you file tax returns consistently with how your employer has reported your payroll in the State Wages box on your W-2. The state tax agencies will be matching those up with your state tax returns.

If your employer is not properly allocating your payroll between states where you physically work, your employer has some serious potential liability to those other states when they are caught. State tax agencies are always looking for this kind of thing; so the current reporting situation could change. In cases where the employer is nailed for not properly allocating wages between states, the related penalties are normally assessed against the employer and not the employees.

If you are self employed, the burden of keeping track of the amount of time you spend and money you earn inside each state is on you. You are required to file tax returns with each state accordingly.

Good luck. I hope this helps.

Kerry Kerstetter

Kerry:

Thanks very much for the response -- it was enlightening. I am a W-2 employee, but my employer reports all of my annual wages in my home state of CA. I have been working under these circumstances for 20 years with time at two major companies, and this is how both have handled things. I also know plenty of colleagues in the same industry working for different companies, and I have never heard of anyone getting wages allocated among several states.

I will have a discussion with my company's Accounting Dept. Thanks again for getting back to me.

It sounds as if you keep a low profile when working in the other states.

Odds are that if the situation were reversed, and you were based outside of Calif and doing a lot of work there, part of your wages would be required to be allocated to Calif. That is the most aggressive state for snagging as many taxpayers as possible.

Kerry Kerstetter

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/11/2004 12:15:00 PM Send this post: