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Must foreign consultant file 540NR to report Ca source income

December 27, 2016 • William Moore • Log In to Post Comments

British Co. has no connection with Ca whatever..except that it sends it's German nonemployee consultant to Silicon valley for 91 days to rent lab space and do innitial work on prototype. (wanted to be near the action I guess) Consultant paid 75K plus costs while working in Ca then leaves Ca forever. Can consulting and development services performed by consultant in Ca be deemed NOT Ca source income because benefit of Ca  services went exclusively to British Co that owns prototype? Could fact that British Co should have registered in Ca somehow deem benefit of services back to Ca? Any help greatly appreciated


The new market based sourcing rules would apply but there are a number of unresolved issues. It would seem that the worker would be subject to tax on the $75k as he's providing services to the lab in CA. 

 Thanks for your response.The Letter and Message Board often cover the situation where a contractor/entity working remotely outside Ca now must apportion income back to Ca because service benefits are delivered to Ca. However the 25136-2 reg doesn't seem to address the opposite situation where a nonemployee non Ca resident contractor from somewhere else temporarily works remotely in Ca to deliver a service benefit to someone outside Ca. In my case the client leased lab space in his name in Ca, to think up and put together the intellectual property for a divise that went on to be further developed and sold elsewhere. I agree it feels wrong that Ca shouldn't get a piece of this, but under what authority? this guy wasn't a resident or an employee. Thanks

I checked with the FTB today and we should have guidance bythe end of January. (hope,hope) It does seem that the IV is subject to CA tax as the service is performed in CA. You may need to use the FTB's Ask a Legal Expert for guidance.

What would we do without Spidell. Thank You


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