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CA Nexus Question

December 21, 2016 • Ben L. • Log In to Post Comments

Hello. Anyone have feedback on my tax question below?

Facts: Taxpayer is sole proprietor with no employees and operates as a Financial Advisor. Taxpayer is full year resident of Nevada and their entire business and customer base is located in Nevada. Taxpayer earns revenue via commissions on stock trades from their Nevada based customers.  Taxpayer's industry is highly regulated and is required to hang their securities license under a broker dealer where the commission revenue is processed thru. Taxpayer uses a broker dealer located in CA and receives a Form 1099-Misc from the CA broker dealer each year disclosing the commission revenue paid out generally in the $1,000,000+/- per year range.  As such the NV customer pays a gross commision that is processed thru the broker dealer of which 90% of such commission ends up with the NV financial advisor.


Questions: 1. Does the taxpayer have CA nexus?

                 2. Is the revenue CA sourced income due to the payment being processed thru a CA Broker Dealer and warrants a CA Form 540NR filing requirement of the taxpayer or not CA sourced income since the underlying customer is in NV? 


Thanks for your input. We have a client under audit and have researched RIA Checkpoint and contacted FTB website and practioner hotline without clarity. FTB position is it is CA sourced income and the NV taxpayer has to pay CA personal tax related to that income.


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