APA's Top Payroll Questions & Answers for 2020 - 54

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APA's Top Payroll Questions & Answers for 2020

State income tax withholding for employee living in
another state

Q.

Withholding Taxes

Our company has an employee who lives in Oregon and works in
Idaho, which is the employee's base of operation. Since Oregon and
Idaho do not have a reciprocal income tax withholding agreement,
shouldn't the employee be taxed in both states? The employee in
question wants us to withhold only Idaho income tax.

A.

It may be that the employee is subject to income tax withholding for
both states. The fact that the employee works in Idaho and does not
want Oregon income tax withheld does not necessarily mean you do
not have to withhold Oregon income tax.
Do you have any business operations in Oregon? You will need
to determine if your company has nexus (a business connection) with
Oregon. Nexus is established by having a business presence in a
state. An office, store, or factory will create nexus, as may the mere
entry of an employee into a state to make a sale or perform a service
call. If your company has a business connection, or any operations,
within Oregon, it is subject to the withholding laws of that state.
The fact that the employee does not want to have Oregon income
tax withheld from his pay is unusual. Sometimes companies withhold
income tax from the employee's state as a courtesy to the employee
when otherwise not required to do so. However, as a best practice,
the payroll department should check with the corporate tax and legal
departments of the company before establishing a withholding account
in a new state. Once a business registers for one tax account it may
receive inquiries from the state about other taxes such as sales tax
or corporate income tax. Also, in some states, withholding and paying
over taxes may itself establish nexus, which makes your company
open to being sued in the courts of that state.
Find out more about multistate taxation and nexus in The Payroll
Source®, §6.10 and APA's Guide to State Payroll Laws, §3.1.

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APA's Top Payroll Questions & Answers for 2020

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Table of Contents
APA's Top Payroll Questions & Answers for 2020 - Intro
APA's Top Payroll Questions & Answers for 2020 - Cover1
APA's Top Payroll Questions & Answers for 2020 - a
APA's Top Payroll Questions & Answers for 2020 - b
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APA's Top Payroll Questions & Answers for 2020 - Table of Contents
APA's Top Payroll Questions & Answers for 2020 - e
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