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USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1237
Experience:  US Taxation specialist.
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A US citizen that resides in Canada for the entire year and

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A US citizen that resides in Canada for the entire year and earns income included on a 1099-Misc from the State of Maine as well as the State of New York. Is this person required to file State tax returns or is this income sourced to Canada under the US - Canada Income Tax Treaty and then treated as foreign income for state purposes?

USTaxAdvising : Hello,Thank you for using justanswer. I can assist you with your questions today.
USTaxAdvising : As far s I can tell NY state does not tax foreign sourced income. Note that this income would be foreign sourced if you earned it while residing abroad. The domicile of he payor is irrelevant to the foreign sourced determination.
USTaxAdvising : See the instructions here for NY state http://www.tax.ny.gov/pdf/2012/inc/it203i_2012.pdf#page5
USTaxAdvising : note there is no adjustment for the foreign earned income exclusion as claimed on the federal 1040. NY only taxes non residents on state sourced income.
USTaxAdvising : The same applies to Maine http://www.maine.gov/revenue/forms/1040/2012/12_1040MEBook_downloadable.pdf
USTaxAdvising : So I would not believe this income would generate a NY or Maine state tax rerun filing requirement.
USTaxAdvising : I would consider his foreign earned income.
USTaxAdvising : Best regards,
Customer:

So this is based on residency for state purposes. Being as the taxpayer is considered a resident of Canada for the entire year, regardless where the income is from the income would be considered foreign source income, thus eliminating the need to file a State of Maine as well as the State of NY income tax returns?

USTaxAdvising and 2 other Tax Specialists are ready to help you

Hello Charles,

 

Yes this would be foreign sourced income if your residency was in Canada. Based on my understanding of NY and Maine tax filing and return requirements it appears that there is no need to file state returns.

 

Best,

Customer: replied 3 years ago.

Ok, what about the Canada - US Income Tax treaty only applying to federal taxes and not state taxes. And with the residential ties of the taxpayer being in Canada (established principal residence, family living there, etc.) wouldn't this indicate that the taxpayer should file state returns for the income received from these states? Would there be anything under the state nexus rules to consider for this?


 

Hello Charles,

 

And with the residential ties of the taxpayer being in Canada (established principal residence, family living there, etc.) wouldn't this indicate that the taxpayer should file state returns for the income received from these states? - unless you actually performed the services in those states then it should be exempt from reporting. See NYS instructions here - http://www.tax.ny.gov/pdf/2012/inc/it203i_2012.pdf

page 5 specifically.

 

If the income were rental real estate income then you would most likely have a filing requirement as the income was 'earned' in the state.

 

Does this clear it up for you?

 

Just because the income was paid from a NY/Maine state does not mean it is taxable by that state. The income must generally have been earned in the respective state. (you must be physically present in the state when the earnings occurred)

 

Best,

Customer: replied 3 years ago.

Ok, so now we are clear. The taxpayer was physically present in the state to earn the income because he is a doctor and performes his services in the particular states of Maine and NY. Being a resident of Canada does not alleviate him from establishing a permanent establishment in the States of Maine and NY for the services he performes as a doctor and thus would then require him to file returns for each state as he does in fact have income from those states and thus the income would then be US source.


 

Hello Charles,

 

Yes, if the services were actually performed in the respective state then I would believe a filing requirement would exist should the income level required for filing be passed.

 

Best,