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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Morning Lev, I have a Single Member LLC, Schedule C, who

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Morning Lev,
I have a Single Member LLC, Schedule C, who transact business in various states - service (training) and products. Their one and only office is in Maryland.


1. If EE of LLC goes to another state to train clients and receives payment from out of state, this may require a non resident income tax return filing dependent upon filing requirements.

2. If products are sold from Maryland and delivered to the out of state company, this is also out of state income. Correct? Just no Maryland Sales Tax?

3. If an out of state client comes to Maryland for the service and the payment is received from the out of state client, is this considered Maryland income?

4. If a Sub contractor is hired by the Maryland LLC to provide a service in another state, the LLC receives payment from the out of state client and you pay the Subcontractor who is also out of state, you my have out of state reportable income, correct? If Subcontractor from Maryland, is it same scenario?

5. Is there a website you recommend that may contain all State filing requirements instead of having to look up each one state by state?

Lev :

Hi and welcome back to our site!
1. If EE of LLC goes to another state to train clients and receives payment from out of state, this may require a non resident income tax return filing dependent upon filing requirements.
While each state has its own rules and regulations - generally - that is correct - if services are physically performed within the state Or goods are transferred to the customer within the state - income realized from that transaction is considered as income from that state sources - and as such might be subject of income tax and filing requirements of that state.
2. If products are sold from Maryland and delivered to the out of state company, this is also out of state income. Correct? Just no Maryland Sales Tax?
For sales tax purposes - the important fact is - when the customer takes a possession of the products. If the possession is taken after the product is delivered to the customer's site - the sale tax liability is determined by that location.

Lev :

3. If an out of state client comes to Maryland for the service and the payment is received from the out of state client, is this considered Maryland income?
Yes - a physical location is the primary reason to determine the source of income.Income realized from services provided within Maryland state boundaries is considered income from Maryland sources.
4. If a Sub contractor is hired by the Maryland LLC to provide a service in another state, the LLC receives payment from the out of state client and you pay the Subcontractor who is also out of state, you my have out of state reportable income, correct? If Subcontractor from Maryland, is it same scenario?
When the customer pays to the Maryland LLC for services provided in customer's state - it doesn't matter HOW the Maryland LLC manage to provide such services - so the fact of hiring a subcontractor is irrelevant. From customer's prospective - services are provided by the Maryland LLC unless the customer has a separate agreement with that subcontractor.
So - the residency of the subcontractor is not relevant as long as the customer has the service contract with the Maryland LLC only.
5. Is there a website you recommend that may contain all State filing requirements instead of having to look up each one state by state?
There is no alternative - we need to verify filing requirement for each state separately - please be aware that regulations are constantly change and to comply - we need to follow these changes. There are companies specialized on interstate commerce and they follow all regulations to ensure compliance.
For brief information about state tax apportionment rules you may use this publication - http://www.taxadmin.org/fta/rate/apport.pdf
But again - there is no alternative to verify with each state.
Please also be aware that as a resident of Maryland - all your income is taxable for that state regardless of its source but taxes paid to other states might be credited - thus effectively you avoid double taxation of the same income.

Customer:

For clarification purposes: If products sold by MD LLC to out of state source, it is MD income only because of no presence in other state, correct?

Customer:

For clarification, MD LLC receives out of state income. He sells products to out of state source. This is MD income, correct? Lack of presence in out of state nullifies out of state income. Now if MD LLC sells products to the out of state source, but also provides services to the out of state client by sending an employee or subcontractor to provide this service, is the product income than added to the out of state income received for the out of state services provided for filing purposes? Also, can you give me a briefing on Washington DC nonresident filing. I have had difficulties finding the correct site. Are they reciprocal to Maryland for business income, not W2.

Customer:

For clarification purposes: If products sold by MD LLC to out of state source, it is MD income only because of no presence in other state, correct?





1:12 PM



For clarification, MD LLC receives out of state income. He sells products to out of state source. This is MD income, correct? Lack of presence in out of state nullifies out of state income. Now if MD LLC sells products to the out of state source, but also provides services to the out of state client by sending an employee or subcontractor to provide this service, is the product income than added to the out of state income received for the out of state services provided for filing purposes? Also, can you give me a briefing on Washington DC nonresident filing. I have had difficulties finding the correct site. Are they reciprocal to Maryland for business income, not W2.



Lev :

For clarification purposes: If products sold by MD LLC to out of state source, it is MD income only because of no presence in other state, correct?
Because the Single Member LLC is a resident of MD - all income is treated as from MD sources regardless where it is sold - that is for income tax purposes.
For sales tax purposes (if the transaction is subject of sales tax) - the place where the customer takes a possession rules. Thus if the sale transaction occurred in MD - it might be subject of MD sales tax based on MD regulations.

Lev :

For clarification, MD LLC receives out of state income. He sells products to out of state source. This is MD income, correct?
We need to be clear what determined "out of state income" If serviced are provided in MD - that is NOT out of state income. Because he is a resident of MD - all income is taxable for that state regardless of its source.

Lev :

Now if MD LLC sells products to the out of state source, but also provides services to the out of state client by sending an employee or subcontractor to provide this service, is the product income than added to the out of state income received for the out of state services provided for filing purposes?
Providing services and delivering products to locations in the specific state - means having business activities in this state. As a result - business income related to these activities is subject of income tax in that state. In additional sales of products will be subject of sales tax applied to the client - unless the client may claim an exemption.

Lev :

Also, can you give me a briefing on Washington DC nonresident filing. I have had difficulties finding the correct site. Are they reciprocal to Maryland for business income, not W2.


You must file a DC tax return if: http://app.cfo.dc.gov/services/tax/faqs/general_filing.shtm



  • You were a resident of the District of Columbia and you were required to file a federal tax return.

  • Your permanent residence was in the District of Columbia for either part of or the full taxable year.

  • You lived in the District of Columbia for 183 days or more during the taxable year, even if your permanent residence was outside the District of Columbia.

  • You were a member of the armed forces and your home of record was the District of Columbia for either part of or the full taxable year.

  • You are the spouse of an exempt military person or of any other exempt person such as a nonresident presidential appointee or an elected official


If neither applies to you - you do not need to file Washington D.C. tax return.
Washington D.C. doesn't tax income of non-residents.


D.C. income tax is based on residency - not on the source of income. That is based on the so-called “commuter tax ban” in the District of Columbia Home Rule Act.
See more information here - http://www.pmstax.com/ftp/state/bull0603.pdf

Lev :

For clarification purposes: If products sold by MD LLC to out of state source, it is MD income only because of no presence in other state, correct?
If the sale transaction occurred in MD - yes - it will be subject of MD rules and regulations only. If the sale transaction takes place in other state - that state's tax laws will apply.

Just in case you were not able to use the chat - I am switching to Q&A mode and posting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

.

For clarification purposes: If products sold by MD LLC to out of state source, it is MD income only because of no presence in other state, correct?
Because the Single Member LLC is a resident of MD - all income is treated as from MD sources regardless where it is sold - that is for income tax purposes.
For sales tax purposes (if the transaction is subject of sales tax) - the place where the customer takes a possession rules. Thus if the sale transaction occurred in MD - it might be subject of MD sales tax based on MD regulations.
.

For clarification, MD LLC receives out of state income. He sells products to out of state source. This is MD income, correct?
We need to be clear what determined "out of state income" If serviced are provided in MD - that is NOT out of state income. Because he is a resident of MD - all income is taxable for that state regardless of its source.

.

Now if MD LLC sells products to the out of state source, but also provides services to the out of state client by sending an employee or subcontractor to provide this service, is the product income than added to the out of state income received for the out of state services provided for filing purposes?
Providing services and delivering products to locations in the specific state - means having business activities in this state. As a result - business income related to these activities is subject of income tax in that state. In additional sales of products will be subject of sales tax applied to the client - unless the client may claim an exemption.

.

Also, can you give me a briefing on Washington DC nonresident filing. I have had difficulties finding the correct site. Are they reciprocal to Maryland for business income, not W2.

You must file a DC tax return if: http://app.cfo.dc.gov/services/tax/faqs/general_filing.shtm

  • You were a resident of the District of Columbia and you were required to file a federal tax return.
  • Your permanent residence was in the District of Columbia for either part of or the full taxable year.
  • You lived in the District of Columbia for 183 days or more during the taxable year, even if your permanent residence was outside the District of Columbia.
  • You were a member of the armed forces and your home of record was the District of Columbia for either part of or the full taxable year.
  • You are the spouse of an exempt military person or of any other exempt person such as a nonresident presidential appointee or an elected official

If neither applies to you - you do not need to file Washington D.C. tax return.
Washington D.C. doesn't tax income of non-residents.

D.C. income tax is based on residency - not on the source of income. That is based on the so-called "commuter tax ban" in the District of Columbia Home Rule Act.
See more information here - http://www.pmstax.com/ftp/state/bull0603.pdf

.

For clarification purposes: If products sold by MD LLC to out of state source, it is MD income only because of no presence in other state, correct?
If the sale transaction occurred in MD - yes - it will be subject of MD rules and regulations only. If the sale transaction takes place in other state - that state's tax laws will apply.

Lev and other Tax Specialists are ready to help you
Customer: replied 3 years ago.


Sorry Lev, but still need more clarification on one item: on services provided in other state along with products sent to other state via postal service from Maryland. Sale of products did not cause presence. However, because of presence in other state is established through the Maryland LLC's employee providing service, the product income will also be included in this out of state income?


 


Whereas, if products are sold to out of state via mail, etc and does not establish presence, this is Maryland in state income, yes?

That is correct - income realized from this state will be subject of income taxes as income from sources within that state.
You need to account for that income and corresponding expenses separately.
Additional complications will be because each state established its own apportionment rules.
Specifically Maryland apportionment rule is based on 3 factors - sales, property, and payroll - with sales double-weighted.
Lev and other Tax Specialists are ready to help you

In additional - when we are talking about possible tax liability - the physical presence is a simplified representation. Generally the tax liability and/or responsibility is based on NEXUS - which might include a physical presence - but generally has a broader meaning "connection with economic interest".
In additional - the nexus determination for purposes of income tax purposes and for sales tax purposes are different and are based on several recent court cases. If substantial nexus is lacking, the out-of-state business cannot be required to collect sales tax. Nevertheless, the in-state purchaser remains legally liable for the tax and pays it, usually as use tax.

 

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