Income Tax, Resident Status, and Out of State Business

[JBM]

If I am an advisor within FL that has clients outside of FL would I have to treat that work as out of state work and pay taxes to say GA? Example follows

I am a FL resident, with a FL business that has GA clients who pay say 10K. Is that 10K taxed in GA or FL? Do I have to pay GA taxes on that 10K?

 

[murray t turtle]

If I am an advisor within FL that has clients outside of FL would I have to treat that work as out of state work and pay taxes to say GA? Example follows

I am a FL resident, with a FL business that has GA clients who pay say 10K. Is that 10K taxed in GA or FL? Do I have to pay GA taxes on that 10K?

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Ask a CPA to be sure; most service businesses are not taxed out of state @ all or as much. My TN CPA volunteered the fact she does not need a TN business liscense, which surprised me

 

[Sig]

If I am an advisor within FL that has clients outside of FL would I have to treat that work as out of state work and pay taxes to say GA? Example follows

I am a FL resident, with a FL business that has GA clients who pay say 10K. Is that 10K taxed in GA or FL? Do I have to pay GA taxes on that 10K?

You would need to register as a foreign corp in GA and whatever other local registrations they have. This can be a PITA since it involves annual attestations/reports/franchise taxes. In general you have to register as a foreign corp if you're doing business in another state, but some states do have specific exemptions for some activities so you'll want to do some research into the law or hire a GA based attorney to figure that out.

 

[JD123]

If you are providing a service, not selling a product, then the tax law is that the income is taxed in the location where the service is provided.

If you provide your service in Florida, then you could have 100% of your customers in Georgia (or anywhere else) and owe no income tax to Georgia (or anywhere else). It is both US source and Florida source income, and not subject to tax anywhere else.

There is no need to register in Georgia. If you are a financial advisor, there may be other regulations that are different from tax law, but there is no income tax to pay in Georgia.

If you want to get fancy, set up a Bahamas corporation and if your customers pay that company instead of you or your Florida company, and you also perform the service while physically in the Bahamas, then there is also no US federal income tax to pay, as it is foreign source income, not US source. However, there are different forms to file, rules to follow, and taxes to pay when (and if) you take money out of that corporation, or if you set it up differently than described here.

 

[Sig]

If you are providing a service, not selling a product, then the tax law is that the income is taxed in the location where the service is provided.

If you provide your service in Florida, then you could have 100% of your customers in Georgia (or anywhere else) and owe no income tax to Georgia (or anywhere else). It is both US source and Florida source income, and not subject to tax anywhere else.

There is no need to register in Georgia. If you are a financial advisor, there may be other regulations that are different from tax law, but there is no income tax to pay in Georgia.

If you want to get fancy, set up a Bahamas corporation and if your customers pay that company instead of you or your Florida company, and you also perform the service while physically in the Bahamas, then there is also no US federal income tax to pay, as it is foreign source income, not US source. However, there are different forms to file, rules to follow, and taxes to pay when (and if) you take money out of that corporation, or if you set it up differently than described here.

Actually almost all of this information is incorrect, and frankly you're doing everyone a disservice spouting off about things which you clearly don't know anything about and for which you provide no references (on your "first" post no less!). I run a company that has employees in only one state and provides services only in 5 states. I'm required to be registered as a foreign corp in all 5 and pay corporate taxes in all 5. There's no way to get out of this by claiming I offer only services or moving my HQ to another country, if it was that easy we'd all have already done so!

The standard is different in every state, and while there may be a state that says providing a service doesn't require registration as a foreign corporation and paying taxes, I know for a fact that "providing a service" is not a specifically exempted item in a number of states, included GA. The specific law in GA, since this is what the OP asked about, is contained in Ga. Code Ann. § 14-2-1501(a). The following exemption may apply to the OP or may not:
"(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;" which may apply to the OP,
(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;"

On taxes, most states require that you pay taxes on the amount of income you sourced there, with some complicated formulas that also take into account your payroll, if any, in the state and your real property, if any, in the state.

The Bahamas corporation is absolutely horrible advice, read up on 26 U.S. Code § 882 just to start.

You'd clearly want the advice of a professional on this, as the penalties just for not registering as a foreign corp are substantial, not to mention the penalties for not filing and paying taxes. In some cases you may fall under a published exemption or an exemption established by case law. In no cases will you be able to claim JD123's advice as a valid excuse.

 

[JD123]

Excuse me, my man, but you need a different accountant.

Service income is sourced in the location where the service is provided. Period.

If you sell any goods, that would be different.

The "state exemptions" you cite are federal law that all states must follow, which is why all 50 states have identical such exemptions.

Interstate commerce is such an exemption, as it is a federal power and not a power that the states can regulate. That's why that exemption exists.

Note also that the first exemption you cite only applies where there is a physical presence within Georgia. Even then, OP's situation would fall within the exemption. If there is no physical presence, it is interstate commerce.

Exemption means the state has no legal authority to tax it. This is not a freebie by the state. It is a matter of settled federal and state law because the US Constitution says so.

Regarding Bahamas, it was excellent advice if and only if a person wants to get fancy, which is what I said. By fancy, I mean that one has to learn what the rules/laws are. One would have to be versed on forms 926, 1120F, 5471, and possibly Treas. 90-22.1 and FATCA. If (and only if) one wants to become versed in this part of Title 26, it could be worth it. It is not for everyone. Clearly, it is not for you.

To form an S-Corporation, one would have to be familiar with forms 2553, 1120S, and Schedule K/K1. It is not much different, but the penalties are more severe if it is done wrong.

First post or not, the sourcing of income is well-established law. If you choose to pay taxes you do not owe, that is your business. If you have other factors that apply to your business that you did not mention and if those factors require you to pay taxes in multiple states, that is a different issue.

But the source of service income is where the service is provided. The location of the customer is irrelevant. As the OP described, he has no legal income tax requirements in Georgia.

 

[Sig]

Excuse me, my man, but you need a different accountant.

Service income is sourced in the location where the service is provided. Period.

If you sell any goods, that would be different.

The "state exemptions" you cite are federal law that all states must follow, which is why all 50 states have identical such exemptions.

Interstate commerce is such an exemption, as it is a federal power and not a power that the states can regulate. That's why that exemption exists.

Note also that the first exemption you cite only applies where there is a physical presence within Georgia. Even then, OP's situation would fall within the exemption. If there is no physical presence, it is interstate commerce.

Exemption means the state has no legal authority to tax it. This is not a freebie by the state. It is a matter of settled federal and state law because the US Constitution says so.

Regarding Bahamas, it was excellent advice if and only if a person wants to get fancy, which is what I said. By fancy, I mean that one has to learn what the rules/laws are. One would have to be versed on forms 926, 1120F, 5471, and possibly Treas. 90-22.1 and FATCA. If (and only if) one wants to become versed in this part of Title 26, it could be worth it. It is not for everyone. Clearly, it is not for you.

To form an S-Corporation, one would have to be familiar with forms 2553, 1120S, and Schedule K/K1. It is not much different, but the penalties are more severe if it is done wrong.

First post or not, the sourcing of income is well-established law. If you choose to pay taxes you do not owe, that is your business. If you have other factors that apply to your business that you did not mention and if those factors require you to pay taxes in multiple states, that is a different issue.

But the source of service income is where the service is provided. The location of the customer is irrelevant. As the OP described, he has no legal income tax requirements in Georgia.

Again, if you can quote a reference that states that performing services in GA is exempt then you may have something to stand on. You didn't, we're apparently supposed to take your word on it as and ignore the reference I posted. Especially because you put the word "Period" after your sentence, that must really really make it true!
If the OP is performing interstate commerce than he would meet the exemption I listed. What he's doing may or may not be interstate commerce, he hasn't provided enough information for us to determine that and it's a term that definition is highly influenced by case law. You certainly aren't in a position to determine this or provide advice. If you were an attorney you wouldn't do so since you don't know all the details. If you're not an attorney, well then you're not an attorney so you're not qualified to provide legal advice. In this case the OP absolutely needs to seek legal advice from a qualified source. You and I aren't it!
There is no situation where you can avoid paying taxes on income sourced in the U.S. by incorporating in the Bahamas. You've clearly never even looked at a form 1120-F. Section II requires you list all "Income Effectively Connected With the Conduct of a Trade or Business in the United States", you take that to schedule J, compute the tax, and put it on line 2 of page 1. What the OP listed definitely qualifies as "Conduct of a Trade or Business in the United States", no "service" exemptions. There's really nothing someone in the OPs position could do that would allow them to legally avoid taxes on that transaction by going through an offshore corporation. Breaking U.S. tax law isn't for me, you're right. If it's for you then more power to you, but I think pretty much everyone agrees it's not great advice.
Not sure what the heck forming an S corp has to do with anything, but thanks for letting us all know what a K-1 is!