Company in Maryland but employee in Georgia

It sounds like your Georgia employee has no liability for MD income tax, and you shouldn't be withholding MD income tax. You may or may not be required to withhold GA income tax from that employee's pay, but it certainly would be the "right" thing to do. If you get at it fast enough you should be able to give the employee full credit for GA for the amount withheld in 2011 for MD. It sounds like you're doing your own payroll. I suggest you get with your accountant on this ASAP.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Thanks. Yes, I do my own turbotax filed taxes. I do not have any income from GA so do not file any state tax there. I have a small grant from a corporation in MD that requires me to hire a market researcher in GA to whom I pay salary. Revenue is generated in MD and work done in GA. So you think it will simpler to not hold any state tax from him and he can deposit his own in GA as estimated or with his state filing to keep it simpler. It would be esier if I was allowed to issue 1099, but my grant does not allow that.

Sorry, Rajesh, but you can't do this. Your corporation has due process/commerce clause nexus with Georgia because you have an employee who performs services there on your behalf. Your corporation must qualify to do business in Georgia, register as an employer there, and withhold Georgia individual income tax on your employee's salary. See O.C.G.A. Sec. 14-2-1501, 1502. See the GA Employer's Tax Guide,

Your corporation is subject to the corporate income and franchise taxes in Georgia. However, for corporate income tax purposes, income from a business other than the manufacture, production or sale of tangible personal property is apportioned by a single factor of sales. Sales are assigned to the GA numerator if the receipts are from GA customers or otherwise attributable to the GA marketplace (Ga. Comp. R. & Regs. 560-7-7-.03(5)(c)). It appears your corporation would have a zero apportionment factor and no tax liability in GA.

The GA franchise tax is measured by net worth, including capital stock, paid-in capital and earned surplus, employed in Georgia. The base is apportioned by a combined property and sales percentage; the numerators are determined by the same rules as for the corporate income tax. Therefore it appears your corporation would have a zero apportionment percentage for franchise as well as corporate income tax purposes and no liability.

But you do have to register as an employer and withhold GA income tax for your employee.

Katie in San Diego

Guide,

I have only 20K/year grant to pay out to a person for next 2 years. Can I just pay on 1099? I really do not want to register in GA my business, this is one-time grant so do not see any point in going thru process of register business etc there, specially when no GA state income tax is owed by me. I am just paying out of overheads.

If by law (depending on a number of factors but in general how much supervision he is under) he is an employee rather than a contractor, you cannot legitimately pay him on a 1099. If you are caught it could get very expensive.

I'm not certain it would work, but one thing you might consider is to contract with an employee leasing company (e.g. Kelly Services) to hire the person and contract him out to you. They will do all the paperwork, withhold the taxes, etc. He will be their employee, not yours. You won't be doing business in GA, they will.

There will be a cost to it.

Or you could have him set up a GA corporation and have his corporation contract out with you. But that will still cause someone to have to do withholding. ___ Stu

As someone else noted, it depends on various factors, mostly on the level of supervision.

When I had one employee in NY and one in CA, I used a local payroll company, who did all the filings in both states. It wasn't very expensive, and I considered it money well spent to be sure we were legal.

R's, John

Guide,

This does not sound correct. What if someone is telecommuting? The company is in MD, but the employee is tele-commuting and happens to be in GA. Your link above results in page not found to me, the correct link is probably BEGIN QUOTE Is an out-of-state corporation required to file with the Georgia Secretary of State?

Sometimes. A corporation incorporated in another state, a ?foreign? corporation under Georgia law, should review the provisions of O.C.G.A. 14-2-1501 (profit) or O.C.G.A. 14-3-1501 (nonprofit). These laws provide that a ?foreign corporation may not transact business in this state until it obtains a certificate of authority from the Secretary of State.?

However, each statute lists a number of activities that ?do not constitute transacting business.? Thus, if a company?s business in Georgia falls into one of these categories, it is not required to file with the Secretary of State. The burden is on the corporation to determine whether or not it should file; the Corporations Division cannot provide legal advice. A corporation that is uncertain about this question should consult its legal counsel. A corporation that decides that it should file is required to do so within 30 days of commencing business in Georgia.

END QUOTE

And the 1501 is at:

BEGIN QUOTE

(a) A foreign corporation may not transact business in this state until it obtains a certificate of authority from the Secretary of State.

(b) The following activities, among others, do not constitute transacting business within the meaning of subsection (a) of this Code section:

(1) Maintaining or defending any action or any administrative or arbitration proceeding or effecting the settlement thereof or the settlement of claims or disputes;

(2) Holding meetings of its directors or shareholders or carrying on other activities concerning its internal affairs;

(3) Maintaining bank accounts, share accounts in savings and loan associations, custodian or agency arrangements with a bank or trust company, or stock or bond brokerage accounts;

(4) Maintaining offices or agencies for the transfer, exchange, and registration of its securities or appointing and maintaining trustees or depositories with respect to its securities;

(5) Effecting sales through independent contractors;

(6) Soliciting or procuring orders, whether by mail or through employees or agents or otherwise, where the orders require acceptance outside this state before becoming binding contracts and where the contracts do not involve any local performance other than delivery and installation;

(7) Making loans or creating or acquiring evidences of debt, mortgages, or liens on real or personal property, or recording same;

(8) Securing or collecting debts or enforcing any rights in property securing the same;

(9) Owning, without more, real or personal property;

(10) Conducting an isolated transaction not in the course of a number of repeated transactions of a like nature;

(11) Effecting transactions in interstate or foreign commerce;

(12) Serving as trustee, executor, administrator, or guardian, or in like fiduciary capacity, where permitted so to serve by the laws of this state;

(13) Owning (directly or indirectly) an interest in or controlling (directly or indirectly) another entity organized under the laws of, or transacting business within, this state; or

(14) Serving as a manager of a limited liability company organized under the laws of, or transacting business within, this state.

(c) The list of activities in subsection (b) of this Code section is not exhaustive.

(d) This chapter shall not be deemed to establish a standard for activities which may subject a foreign corporation to taxation or to service of process under any of the laws of this state.

Last modified: April 27, 2006

END QUOTE

While the company may not be transacting business in GA for most purposes, the state has the right to require withholding on behalf of someone employed in the state, even if it doesn't arise to the level of transacting business.

Whether GA does that or not, I don't know. They certainly can, and I'd generally bet on Katie to be right about these things.

___ Stu

Isn't this all very similar to the thread I started a couple of weeks ago about my employer in NV being required to withhold MA income and unemployment tax.

To let you know what happened there, it looks like the company is going to switch from using the owner's accountant to ADP for their payroll services. They should know how to deal with all the different state issues.

Yes, essentially the same situation.

Excellent solution. Since ADP is national, it will probably be easy for them to do what needs to be done, since they do it all the time for others in the same state. ___ Stu

Guide,

Where in the quoted material from 1501 do you see an exception that covers having a telecommuter working in GA?

Ira Smilovitz Leonia, NJ

True, state tax withholding is probably required. But Katie's post said that the corporation also owes GA corporate income tax, but it would be zero because GA sales is zero. This suggests that (1) the corporation must pay the GA annual filing/registration fee, (2) if the employee was in CA then this would perhaps be a CA corporation and would have to pay taxes because CA apportionment factor includes payroll and property (ie. payroll paid in CA divided by total payroll, property in CA divided by total property, sales in CA divided by total sales). But I say that no GA tax is owed on the grounds that perhaps there in no GA nexus -- though that depends on what the employee is doing there.

Guide,

probably

having a telecommuter working in GA?

I don't know. The telecommuter surely needs to have GA tax withheld, but it seems illogical that the corporation itself should become subject to GA tax just because it has an employee there.

Guide,

probably

having a telecommuter working in GA?

What if my employee is willing to work as 1099, as he is pretty much unsupervised and doing market research work. Can I issue him 1099 as a company from MD and then employee can file for his own GA state and federal taxes? To me, this seems simplest solution. He wants to have Georgia residency so that he can settle there long term, so he wants to file state taxes in Georgia.

Guide,

probably

having a telecommuter working in GA?

I am confused with all suggestions here. If I have a 1099 independent consultant or a W2 contract employee and he/she is willing to take care of his state taxes(even a W2 employee can take file his estimated taxes if not withheld by employer) and I have no income from the state why do I need to register there? If this was right I believe every IT outsourcing company will register in every state which is not the case.

FYI, when I had one employee in NY and one in CA, I used a local NY payroll service. This situation turns out to be very common, and when I asked if they could do CA payroll, they told me I was far from the first person to ask for that, and as far as I can tell, they did it flawlessly.

R's, John

I agree you probably don't need to register as a business, but if you have a W2 employee in GA, you (not the employee) have to pay GA unemployment and perhaps other employer taxes.

Really, a payroll service that knows what to file is a bargain, all things considered.

R's, John

The point is to use a *payroll* service, not an accountant.