I ended the post with a request –
“And I would open the question to any of my tax pro readers who have experience with such a situation. You can let me know what you have to say either by submitting a comment or sending me an email at email@example.com and I will include all responses in a future follow-up post.”
I received only one response.
Fellow tax pro and “twit” John Sheeley, an EA based in NYC, agrees with me about the wages being taxable to New York State and brings up another issue. As John points out below, the NJ consultant may also have to file corporate tax returns for and pay corporate income tax to New York City and New York State due to “nexus” (which is a real PITA).
Long time no "speak". I won't ask how your season went; I know from "reading".
Your question posed in today's post is very interesting. I believe your statements are all true and correct, as usual. You don't mention a few other concerns:
(1) Having an employee in New York means the NJ corporation has nexus to New York. The only executions to this nexus are the protections provided under Public Law 86-272, which won't apply in this case.
(2) The corporation needs to qualify with the Secretary of State to transact business in NY (a one time fee of a few hundred dollars), file a NY corporate tax return, and pay NY corporation tax.
(3) If he would like sub-chapter "S" recognition in NY, he needs to file a CT-6. New York has a process for late-recognition of that status.
(4) The corporation also needs to file and pay New York City corporation tax, since he has nexus.
(5) Depending on what service he provides, he might need to collect sales tax. If he is repairing computers (which I doubt), he would be repairing tangible personal property, a service which is subject to sales tax in NY.
New York has a voluntary disclosure process whereby if the taxpayer comes forward and agrees to pay his back tax and interest, he can avoid penalties and possibly only be subject to a limited look back of three years. NY will also only impose the "regular" and opposed to "penalty" interest rates.
Love the blog, thanks for time you put in so the rest of us can enjoy it!
John Sheeley EA
I had thought about the possible NEXUS situation, but did not bring it up in my post because TWTP is basically concerned with individual income tax issues.
States like New York aggressively pursue potential corporate tax and “franchise fee” income resulting from NEXUS - more so, one would expect, in times of budget crisis.