I employed a California resident, so now I’m subject to its regulations
ccleve.com
ccleve.com
This isn't really news. 15 minutes of reading about staring an LLC in Deleware and you'll find you have to register in the state you live as well - so it shouldn't be a shock you have to file in places you have employees.
1099 is definitely the way to go for as long as you can - people still get social security credit.
IANAL, this isn't legal advice, blah blah blah
Less than that! In the event of a random audit, they will aggressively try to reclassify 1099 contractors that have no interest in being employees and don't meet the definition in any way.
Assuming they did decide to quibble about the classification what can they actually do to an entity that has no legal existence in the US?
"Making matters worse, if California’s tax assessments are not paid voluntarily, California frequently further tramples on the sovereignty of other states by issuing orders to interstate banks, demanding that they transfer funds in Arizona-based accounts for back payment. Those seizure orders threaten the banks that, if they do not transfer the funds, California will take the taxes and penalties owed from the banks instead. Not surprisingly, the banks almost uniformly consent to California’s strong-arm tactics.
Exhibit G in the filing provides an example where California demanded that Wells Fargo not only transfer the $800 tax, but also a $200 “demand penalty,” a $432 “late filing penalty,” a $79 “filing enforcement fee,” and $63.40 in interest, for a “Total Tax, Penalties, Interest and Fees” of $1574.40."
https://www.azag.gov/press-release/arizona-attorney-generals...
Even a minimum wage employee working full time will cost that much in a week or two.
I feel for people who are on the lower end of the income scale that that try to do basically anything is California's hostile business climate.
Imagine the opposite: you set up your business out of state and employ California residents but don't follow any of their labor laws. You underpay them. You don't take out the appropriate amount of state taxes. You don't report their income to the state. You don't give them overtime pay. How is this not just a glaring problem?
They ended up classifying me as a "contractor" working under one of their existing agency relationships but aside from who signed my paycheck there was no distinction
IANAL, but if you are building a software product, and you hire someone to do software development work on your core product, then CA may easily take the view that person is an employee because of the ABC test (as of September 2019).
1. You don't tell them what to do, you just negotiate an end product.
2. Your main business is something else.
3. They routinely have other clients.
All three, or they're an employee.
The plumber who unclogs your drains is an independent contractor. Someone who does the work of your business is an employee. It's that simple.
Many companies hire through staffing companies, rather than hiring 1099s directly. But when the contracting company only provides a service to you, and their 1099s are only contracted to your offices, you may find that the employees of this other company are considered to be employees of your company instead. Courts can decide to pierce these abstractions. The most notable example is the Microsoft permatemp lawsuit: https://en.wikipedia.org/wiki/Permatemp
If your company has so much piping that the local plumber hires staff dedicated to you for years on end, then it's conceivable that a court would decide that the plumbing company's employees are actually your employees.
Personally, I've always wondered whether government contractors could win a lawsuit to be considered government employees. The US government is by far the biggest "permatemp" employer and seems to itself regularly flout these kinds of laws.
Maybe if this nonsense was actually addressed and made strict, the US government would finally be forced to provide just compensation for it's employees instead of always just shoving piles of money at external contractors and allowing untold grift
You are engaged in a trade or business and the payment was made to another business that is incorporated, but was not for medical or legal services
Otherwise, you are supposed to file a 1099 (assuming it was trade/business work, not personal stuff for your house, etc).
https://www.irs.gov/businesses/small-businesses-self-employe...
For example, see https://www.nolo.com/legal-encyclopedia/exempt-job-categorie....
Software consulting probably (IANAL) falls under "Business to business consulting", at least if you structure your consulting shop correctly. If you're just working long-term full-time for one client and not offering your services up elsewhere as the GP's case describes, you're probably mis-classified under the ABC rule.
They absolutely hate orgs and individuals that provide an alternative to California's onerous requirements and don't pay into the state funds
It certainly doesn't pass this contractor requirement...
"The worker performs work that is outside the usual course of the hiring entity’s business"
The "danger" with a 1099 isn't that you don't get social security credit, it's that there's no withholding, so the recipient has to pay all of the taxes after the fact (instead of getting a refund come tax time like most? many?).
It shouldn't be a problem for someone used to this and plan/save accordingly, but it's easy for someone new to contracting to fall into a trap of "OMG, look at all this money!! I'm going to go buy something expensive..." and spend everything, without considering their tax liability down the road.
What do you mean? You still pay in but you have to pay 100% yourself instead of having the company pay half.
Many haven't yet, and many people can get "tricked" into it - there's a reason the government has to stomp on companies that try to 1099 everyone.
All can have big financial impacts to employees, and employees need to understand them before they accept an offer. There's no reason to be surprised by the tax implications of 1099 vs W-2.
1099 isn't necessarily worse than W2, it opens more tax deductions for the employee, but also requires more bookeeping and the employee needs to understand what the difference is.
It can be hard to find the exact details for comparison which is why it’s good to have contacts in an industry and in an area.
It's absolutely absurd.
"The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States."
A sole owner of an Illinois business could be read in that text to have immunity from the California "minimum franchise tax."
It would be helpful to see the Supreme Court remove California's abusive interstate taxation.
The plain text of the Constitution often does not mean what laypeople think it means.
"We the people" does not seem to be written for Ivy League lawyers to understand and translate to laypeople. A Constitution written in a way that only a small percent of people are "trained" or "authorized" to understand or apply is a big time failure. Just sayin'
This means, for example, that if a state wants to tax residents of other states that do business in their state, they have to tax their own residents for the same activities.
So, if CA wants to tax an Illinois business for its activities in CA, it would have to tax CA residents for those same activities. And CA absolutely does.
Thats not to say there isn't tons of “real” contractor work available to people who actually work independently.
But it only takes like 5 minutes to read the IRS 20 factor test and it pretty much immediately makes it clear what’s a “real” contractor relationship and what isn’t. IMO people running a serious business shouldn’t have a problem doing the most basic research to make the determination.
To be super clear, California’s ABC test is only 3 factors and it codifies that those 3, which are already in the IRS test (A is 1, B is 3 & C is satisfied by 17 or 18). It mandates that these 3 (out of the 20 supplied by IRS) in particular must be present, clearing up the existing rules.
What I'm trying to communicate is that this understanding will NOT sufficiently protect you from the CA EDD. It goes MUCH deeper than the above and they have no problem making assertions that probably would not stand up in court if you hired a tax attorney, but they don't really care.
Dirty secret of remote work is that lots of companies are abusing the 1099 system to make it happen. The workers definitely don't meet rules for being 1099, but tax compliance (not to mention sorting out benefits) across a whole bunch of states and even countries is crazy overhead, so the realistic options are to make everyone 1099, or to only hire from one state.
... then again, a bunch of bigcos abuse 1099 for non-remote employees all the time and have for years, so, not like this is unique to smaller all-remote or remote-friendly companies.
Isn't that true in approximately the same sense that it's true that the onus would be on the California government to find you and work with your local government in order to extradite you?
FWIW, I've never had a problem reaching the FTB or CDTFA by phone. They also have field offices all over the state, though I realize that would not have been useful in your case.
For those who are considering leaving California: make a list of ALL ways you can cut ties with the state, make absolutely sure you check all those boxes, and document everything.
Not that Cali’s system is awesome but give me a break, OP jumps into having W2s yet complains that Congress needs to pass laws and no one should hire in CA?
I was not aware that hiring a remote employee there required that my business file an income tax return, which is completely unrelated to employment. My income is none of California's damn business if I don't sell anything there and have no other nexus with the state.
Plus, no other state has California's absurd franchise fee, even for small businesses with zero revenue.
50% of your business (and to be frank probably 80%+ of the value add based on your write up) was done in California but you act like it’s crazy for California to make the above claim.
Literally your income is California’s business. You are doing business in California.
How are they supposed to know you’re not selling anything there… if you don’t report it?
Is it questionable phrasing? Yes. Is it wrong? No. Your business clearly and directly derived income from California, and per California law, the state is owed income tax on that.
(But is it kind of ridiculous in a modern economy? ...ehhhh it depends. California is one of the few economic powerhouses amongst the states, and there's good arguments to be made for having this system in place. You can argue about the threshold, but the idea that states should not be allowed to recoup economic loss from people being hired out of state without the employer paying back taxes over the income generated through that hire to the state that got them that hire, is not quite thinking it through)
This is technically true in the sense that zero is a substantial part of zero :)
> well over 25% of the business income can be attributed to a Californian workforce
The argument is that the company in question had 0 total revenue. If you want to attribute 25% of that to a California source, sure, but it's still $0.
So yes: California absolutely wants you to show that the over 25% contribution by one (or more) of its resident(s) amounted to an income of $0. They are not going to take your word for it, because your word is no good: fill out the paperwork to prove your claim. If you don't, it would be far more reasonable to assume that your business had enough income to pay for their employee (which typically costs a company twice what they actually pay in gross salary), which by definition is a non-zero amount (because under contract law there has to be an exchange of value for a contract to legally exist: you cannot be contracted to work for free).
It's their state, so they can pass whatever laws they want obviously. People living there just be aware that this is incentivizing not hiring remote from California.
My personal opinion is that we spend too much on lawyers and accountants. Our society should be optimized to let people focus on their ideas - bring in cash flow - and lift the entire society up when possible.
That said - I'm not sure I have a good solution here. I don't think we should tax income (don't punish people for working). I go back and forth on sales taxes (I kinda like use taxes, but again, that negatively affects a significant amount of the population un-proportionately). A chunk of the world uses VAT. I'm researching VAT closer.
We can make this a more fair, easier to operate in world than we have now. I'm a supporter of that.
But we do need them to run a business, because --and this is the part that explains why-- your brain is finite, and you cannot be an expert at accounting, and law, and your actual profession. The willingness to outsource expertise to other people is what makes society possible.
As for calling income tax a punishment: that's a bit weird, because you're not paying taxes on "your money", your money is what's left after taxes, the amount before taxes was your employer's money. Only some of that is going to be yours. If you live in the US, you unfortunately live with an idiotic system in which you are handed the full sum, being way more than is actually yours, and then making you responsible for splitting it up correctly and punishing you if you don't. However, if you live in a more modern country, at least in terms of how tax is handled, you wouldn't need to do this at all. The taxes will be withheld as part of the transaction, paid by the party doing the paying, and what is received is 100% the receiver's money, with no further taxes owed. (we see the same idiocy vs. sensibility with sales tax: some countries like Canada or the US have the insane habit of listing untaxed price in stores, with an inflated price at the till. More sane countries instead list the actual price of goods, with the tax processing taking place in the computers that handle the payments)
Remember: your country needs to make money for it to stay a country. Setting a rule where any monetary transaction taking place in the nation (made possible only because there is a working national economy in the first place) has to include a portion that gets used to fund the nation that makes the economy possible isn't too crazy. Sales tax, income tax, capital gains tax, etc. are basically all the same thing (money changes hands, the nation gets a portion of it so it so that it can keep operating) using different rates (mostly) adjusted to be appropriate to how much is necessary to prosper. Of course, in a good tax implementation, you don't "get that money and then you have to pay taxes", instead those taxes are withheld as part of the payment and when the tax date rolls over, you have nothing to do (something that a number of countries actually do).
It's when you get into levies (property tax, fuel surcharges, etc) that things become a bit more questionable, and one of those "what kind of country do you live in" differentiators.
Except this was done across state lines. There's a term for that: interstate commerce. The federal government has the sole power to regulate interstate commerce. California should pound sand here.
I think an out-of-state employer funneling money into CA via its employee is a benefit, but you make it sound like a drain.
California does not own the employee, it is no longer the time of slavery. Or it is still slavery in a different form, where states own almost everyone, especially their revenue?
I have no doubt that you can find some sort of analogy that explains how slavery and taxation are equivalent. Good work. I'll be moving on.
I'd also like to note that the term "slavery", in a colloquial or non-rigorous sense, has been applied to serious topics both on and off HN.
e.g. wage slavery [1], overwork of graduate students, unpaid internships, medical residency practices, etc.
I'm quite sure we still have a shared language despite the lack of rigor in those cases.
[1] Applied strictly, the term is self-contradictory
Why not just ban remote work from CA to elsewhere then? The CA citizen, apparently, belongs to CA in your view.
If you're operating a business there employing people then yes of course it's their business. It's like this is the first time you're hearing about 'the government'.
Is that what the law actually says, as stated by someone with some expertise about your situation (including the cross-jurisdiction aspects)? Because you don't really get to be your own judge an jury.
I perceive civil business law to be a big pile of known and unknown unknowns (to me), and I certainly wouldn't trust my interpretations of it for anything important.
Your business is generating revenue from a resource of California (their resident). You better believe they’re going to want a piece of that.
The point is not that this situation is the exact same as yours. The point is that each state has bizarre, unintuitive tax and employment law. Even if you ask, you'll likely get incorrect information from the state until an angry letter shows up. As long as your paperwork is organized, these problems can be made to go away. This is the cost of running a business. It should be easier, but it's not. Some states are easier to work with than others. Even "business friendly" states like TX are aggravating and much more so than other states that I've done business in.
Also OP posted a rant but doesn't seem to know what is going on or whether he actually needs to do anything. For all I know the demand from the CA FTB is mistaken and can safely be ignored.
For the record, I do have to deal with the FTB because I have a California LLC, and they are a major pain and cause of expense in that situation.
When only the rich and powerful can start companies, it is not a fair world.
Yes, this guy is complaining because he didn't read the laws or get legal/financial advice before hiring someone in CA. However, that doesn't excuse the CA tax authority from being annoying and aggressive. If you are a high earner in one of these states with more than $0 of unusual income (and rentals count as "unusual") or if you do business in them, you probably need a good accountant or a tax lawyer if you want to make sure that you are safe. It's just a cost of doing business there.
For most East Coast rural areas, NY & DC have been the traditional bogeymen, not california. The mountain west is much more within Cali's sphere of influence so-to-speak.
https://www.fitsnews.com/wp-content/uploads/2020/01/map11.jp...
So yeah, sure an obvious counter example is of W-2 employees at a FAANG are smart and wealthy, but many of them don't bother to look and have few ways of lowering their taxes, but people playing around with capital have plenty of ways.
This leaves a poorer class of people (in California and all across the country) that make too little to actually be encumbered by California taxes and also are not doing anything to trigger compliance measures on themselves while merely imagining its high taxes, and a richer class of people that can route around it like always and enjoy everything attractive about California.
I make a lot of money, pay a lot in taxes, and do not have "obvious ways of routing around it" outside of a mega-backdoor roth.
Basically, if the FTB decides to throw the book at you, you are toast.
So expense everything because you're building something revenue producing and spending towards that, trade 1256 contracts more often instead of just random stocks/ETFs willynilly (ie. $SPX options instead of $SPY options, because you actually know what you're trading), tax loss harvest aggressively, borrow against assets to begin with, spend the borrowed or outside capital on the expensable things (you owe whoever you borrowed from - eventually - but not the government, and in some cases can deduct the interest as well). Spend more than you earned that year and you have no tax to pay, achievable via having savings or outside capital to spend. Boost up assets in tax deferred and tax exempt accounts, the usual. Its easy to stagger the tax events across years, such that there is always a counteracting force mitigating taxes during that current year.
The government makes an incentive to transact in certain ways, the velocity of transactions is more important for the economy than taxes, when you fail to do that the government takes a cut of the remainder. (This is true of income and some other taxes, while other forms of taxes support very specific programs directly, and are much smaller)
The state needs small business rules with simple forms, push button compliance and exemptions for interstate commerce.
The alternative is that most small firms live in the informal sector or do things wrong, not b/c they are bad actors but b/c compliance is hard.
People like to use the IRS as a political punching bag and it makes zero sense to me. Their job is to explain the code Congress wrote in terms laypeople can understand, design the forms, collect and process the returns, send notices, and take enforcement actions when cheaters try to flout the law. People who don’t like getting taxed or are frustrated at the complexity of the revenue code should take it up with Congress, not the IRS.
As a side note, it’s also incredibly weird that some very vocal people have a problem with the IRS, yet are staunch defenders of police, even though the IRS has never beaten up or killed a single person for breaking the law.
I haven’t lived in California for two years, yet I still have to pay them taxes on RSUs that are vesting this month. It’s insane.
California has a pretty advanced FTB and catches and alerts on these.
However I can strongly agree that their needs to be tax simplification and the current state of affairs is a mess. For businesses under a certain revenue it should be file-able by one person in their spare time and anything else is a waste of even the state's reasources to go through. This absolutely should have either federal or California regulation to correct.
Very much worth mentioning that companies like Intuit spend money hand over fist each year to keep the tax code complicated.
It costs federal taxpayers around $500 billion dollars a year to file their taxes.
Why can't that be more efficient? That is a hell of alot of money that could be handed back to the taxpayers - or added to the federal budget.
Just to live, people are paying part of that. Just to be incorporated, corps are paying that. Just to file paperwork - and have someone cover it for you.
What if we could use that money to start focusing on solving cancer? Mental health issues. Instead - we pay that money and all we get is some paper that goes through a 1960's mainframe eventually (which nobody understands the IRS mainframes anymore), and risk having them just stress us out more. That doesn't help anyone.
It's a mess to get into. It's a mess if your successful. I'm not so sure this isn't a mechanism to suppress parts of our population (or all of it).
Because it's not just California that can surprise you with things like this. Colorado could zing you if you hire someone who works there but didn't list the compensation range on the job listing. Quebec can zing you if you hire a Quebec resident and aren't prepared to allow them to work in French, even if they don't speak French themself.
My employer did just this. Nothing crazy restrictive (or at least nothing unexpectedly so, given the nature of local taxation etc). IIRC, it's basically "if you're going to work somewhere for more than 2 weeks, you need approval from your management chain (who has to submit requests to HR/payroll)."
There was additional language about international travel. We have many Indian (and other immigrant) teammates living in the US who travel home for extended periods.
I did just shy of 2 weeks in Florida earlier this month, all that required was a heads-up to my direct manager, no approval required.
https://en.wikipedia.org/wiki/Jock_tax
>In the United States, the jock tax is the colloquially named income tax levied against visitors to a city or state who earn money in that jurisdiction.
I would love the OQLF to try. On my main PC, I use an Ergodox clone, basically a kind of split keyboard. Keycaps for said keyboard are tricky to find in sets that fits for every key (unless I buy them per piece I suppose), and that's for a basic English-US keyboard. Anything else is virtually unheard of- let me know if I am wrong. Anyway, using English keycaps is a big no-no from the OQLF and would require me to switch, but to what?! Here's the kicker: I am typing that with the Bépo keyboard layout, basically a French Dvorak. This would require me to make a special request to a keycap maker, as anything non-alphabetic is really different. So installing a blank keycap set with unmarked keys would be the cheapest way to go about this problem, but I don't think this would pass the OQLF requirements neither.
OQLF suggests but in no way requires the Canadian Multilingual keyboard. Typing in French, with associated keys properly marked, is what matters to them.
They had to. It's either "Product maker has to provide you the French labels, or if they don't, print your own". Literally. I remember a certain VoIP desk phone company shipping us "universal" labels with graphic symbols, that was considered acceptable by the OQLF since there were no english words.
IT has generally a bad opinion on OQLF precisely because of these kind of ridiculous requests they have to comply to.
I talked to my employer about moving to Montréal a while back, because I love the city, and we're all remote anyway, and perhaps I'm a sucker for a brutal winter too (but OMG the summer), and they told me in no uncertain terms that no definitely not. It turns out it's one of the few places on the continent employees can't live, because it's just not feasible for us to comply with la loi 101.
Every state does this.
I, like many other people -- and I'm not a genius, nor an attorney -- have managed to run a small business in accordance with these rules. Was there sometimes a consult with an inexpensive lawyer around hiring, or an accountant around taxes and payroll? Sure, but that was it.
Imagine if Jobs and Woz were starting today and lived in CA and OR. That version of Apple would have never gotten off the ground due to idiotic laws like this.
The fact states can reach outside their own jurisdiction is pretty insane in my opinion. If I'm sending money to someone who lives in State A, compliance with the regulations of State A should be the responsibility of the person who lives there, not the person who doesn't. This regulatory burden means I would never employ anyone except as a 1099 until my business was large enough hire a full time payroll accountant.
I owe $800 for the “minimum franchise tax”. California charges this fee to everyone for the “privilege” of “doing business” in California, whether they have revenue or not.
How is this not extraordinarily counterproductive? Residents of California have a child, then spend tremendous resources both private and public raising and educating that child. When the child becomes an adult he find an employment opportunity with a company in another state. California behaves as if it would rather him just leave and take all those resources than stay and pay income tax on his earnings that come from out of state.
Isn't there some stuff about the Federal government governing interstate commerce? Of course IANAL.
I get, from a legal perspective, that that's not fully aligned with all court precedent, but it's OK to call it dumb that CA has any say over this situation.
I'm not sure what you're missing here. I'm calling it dumb and inefficient. Yes, CA seems to have the legal right to set up a dumb system. That doesn't mean it's a Good Thing.
It does; that nexus consisting of 100% of its labor force working in the state.
> and should be the treated the same as a company with a warehouse and 500 employees
That's not the question, since a company with a warehouse and 500 employees in California is not treated the same, as it is subject to a whole lot of rules and mandates that a single-employee remote-only foreign-HQ’d business is not.
Yes, obviously. The part of my firm that is operating in California is.
Why does not having a physical location for the office change anything?
* We have 50 states
* ... and if you're doing business online, add 50 countries to that...
* ... with their own sub-regions which may have their own laws (see the comment about Quebec above)
* Each of these local jurisdictions tends to have a LOT of laws on the books;
* Many of which are poorly written and unclear
* Many of which have been inconsistently, infrequently or unclearly applied as the internet has grown (you can very easily find examples of even giant companies, with corporate legal teams, running into unexpected issues)
Finally, there's the kicker:
* Even lawyers will end up telling you that, due to lack of clarity around laws applying to the internet and their enforcement, you might engage in a practice now only to find out later that it was more risky than you thought
Granted, OP's case is not the most complicated out there. It has a fairly clear answer: California is extremely aggressive about taxation and will grab any money it can. Hence the nickname "Taxifornia". And, be aware that employment is a particularly risky area.
But interstate commerce is really not as simple an issue as you're making it out to be. I've asked my accountant about issues where the answer was "well, you could technically be fined $50,000 and nobody really knows whether the state could successfully apply the fine, but right now they're not doing it sooooo..."
You can't have 'states rights' (which, for better or worse, is how America claims to govern itself) and also have a single law of the land.
If you aren't sure that you're breaking a state law, don't do business in that state. Or do, and live with the consequences.
No, it's not.
“States rights” didn't really enter the political lexicon until it was injected there by the proponents of permanent institutionalization and expansion of slavery, who eventually revolted over it, lost, and whose ideological successors keep raising as a motto for their (usually unsuccessful, beyond the short term) attempts to resist progress on equal civil rights.
It is not “how America claims to govern itself”, it's how reactionary dissidents against the way America governs itself complain that they would prefer America to govern itself.
In the way America claims to govern itself, people have rights and governments, including those of states, have powers.
You probably mean “federalism” or “dual sovereignty” or something like that.
Yes, have you?
> State's rights are literally enshrined in the Constitution.
Find the word “right” or “rights” in the 10th Amendment.
“Rights” are nowhere associated with governments (state or federal) except in being protected against them in the Constitution (either base, bill of rights, or later Amendments); in the Constitutional model, people have both rights and powers, the latter of which they endow selectively to various governments.
“States rights” is a slogan created much later than the BoR by the pro-slavery faction that continues to be an anti-civil-rights slogan.
Doesn't say anything about state's rights. But it does suggest that any powers not already reserved by the Federal government belong as much to the people (i.e., citizens) as they do to the states.
The general issue of the relative distribution of power between states and the central government has.
That's not what “State’s rights” historically refers to. As I explained, in detail.
You also completely ignored my point on the legal uncertainty factors. Businesses break laws every day that are just not enforced. Even a lawyer or accountant is occasionally blindsided by a state or federal authority choosing to selectively apply a law.
My sympathies lie with the small business owner here. It's very difficult to make sure that you've got every angle covered at all times, especially at the scale he's running at.
You mean, exist in the 21st century and sell or conduct any kind of business online? Is that a big business?
It's a well recognized fact that legal and accounting complexity, aka red tape, is an inhibitor of small business growth. Derisively sneering at anyone who doesn't want to do the "necessary work" or "behave" is a troll opinion, and not particularly rational.
Any business that has ever tried to do something at that scale at any point in human history needed to deal with compliance in all of them. Just because Stripe or the Apple Store provides payment processing as a service doesn't mean that you can just shrug your shoulders, and claim that none of the other regional distinctions and local laws apply to you.
> Derisively sneering at anyone who doesn't want to do the "necessary work" or "behave" is a troll opinion, and not particularly rational.
Claiming that the law doesn't apply to you because you're a small business and you can't be bothered to follow it what isn't particularly rational, here. If you think this is an excessive burden, you should work to invest more power in the federal government, or in international unions like the EU.
You don't just get to do a run-around of sovereignty because you're a foreigner and it's a lot of work.
Basically everything you've written is dripping with contempt for anyone who gets similarly blindsided, and you're making every effort to strawman and twist the message. Nobody, not me and not the guy writing this article, says that the law "doesn't apply" to us. Most people starting a business have a deep desire to follow the law as well as possible, because they don't want to run into future difficulties. But again, it's difficult to check all the boxes.
I wonder why you're so contemptuous, but it's kind of a moot point. Most people understand that the tax code complex, and understand that it would be better for small businesses if they were not so complex.
Leave any delusions of consistency at the door. :)
For example, if you’re based in Tennessee and you if hire an employee in Washington and decide you only need to follow Tennessee minimum wage policy, Washington has every right to fine you or take you to court under Washington law.
National governments are allowed to enforce laws outside their own borders, such as intellectual property and copyright. While challenging to enforce, it is possible.
I believe those are done through treaties.
I'm not sure how the federal government weighs in on this since they have the authority on interstate commerce, which this falls under.
If that's right or not, is certainly debatable.
You don’t get to set up shop in a state with low taxes and minimum wage then pay your employees in another state using whichever state’s laws you prefer.
CA gets to regulate the company with respect to its CA operations, i.e., that employee in CA. The CA regulations don't apply to any of the company's non-CA employees.
This has always been the rule with respect to employees working in other jurisdictions.
The real "untenable" thing is proposing that corporations can neuter state laws entirely by the simple act of incorporating in not that state. I'm sure that wouldn't lead to a race to the bottom or anything, the US definitely doesn't already have issues with corporate-owned states or anything
I have no problem with California exercising its sovereignty over its own citizens. The employee in question should have been protected by California laws, being a resident of California.
What the article's author relates is California asserting sovereignty over an entity that has no nexus or revenue derived from California. This is the overreach and should be outright banned at the Federal level, otherwise there's nothing stopping a state from passing a law that requires companies to pay $30,000 tax for the next five years for every employee that vacations in that state. Do we really want to stomp small businesses with having to know the business tax codes for all fifty states in this age of remote work? I think not.
It's about as stupid as the five states in the US that decide they can impose income tax on non-citizens of those states if the employer resides in that state.
The idea that the employees and the work they do aren’t part of the business is some new idea that I hope doesn’t gain traction.
Say the federal government did allow for this line of reasoning and prevented states from treating remote employees as having nexus in the state they live and work in. How does that not end up with every company incorporating in one state and hiring all their employees in other states so they can avoid all state level regulation?
The revenue any business derives is the sum of its employee efforts. A physical presence vis a vis an employee is surely a nexus.
> otherwise there's nothing stopping a state from passing a law that requires companies to pay $30,000 tax for the next five years for every employee that vacations in that state
You know, I'm not surprised you would make such a hilarious non-sequitur given your position makes no sense in the first place, but to argue "an employee going on vacation in a state" is even in the same universe as "employing a resident of a state" is actually pathetic.
> Do we really want to stomp small businesses with having to know the business tax codes for all fifty states in this age of remote work? I think not.
Do we really want to simply take away all regulations so corporations can take advantage of interconnectivity and globalization to be even more exploitative of workers and increase wealth inequality further? I think not.
> It's about as stupid as the five states in the US that decide they can impose income tax on non-citizens of those states if the employer resides in that state.
What is a "non-citizen of a state"? I have never heard of citizenship in a state, that is a country-level concept. If you perhaps mean non-residents, I would also agree this seems like overreach, except funny enough the US government does the same thing to all its citizens unless they pay a big fee to renounce their citizenship, so it is a distinctly American brand of overreach!
Maybe there is a reasonable explanation for treating these differently, I just don't see it right now.
Yes, because if the person moves to a new state, their entity has established a nexus in one state, and therefore that state exclusively governs them.
The business entity who has employees in other states is, by the exact same logic, subjected to the laws of each state they have nexus in, and an employee that is a resident of a state is transparently a nexus in that state, as you agreed upon in your "moving" example.
Hopefully it's clear!
They are of course free to capture anything that crosses their border, which in this case ought to mean that your company won’t be able to send money to the state.
However USA law defines this, I think is wrong. That’s what I’m saying.
The USA is an outlier in many ways. It taxes it’s citizens outside of the country, forces awkward bilateral trade agreements , and is not at all harmonized with work laws of other countries.
An office is a physical presence to me. A single person working from their own house is not.
Why would the intellectual property the employee generated be worth nothing simply by originating in California?
In other words, if a bottle manufacturer in Illinois sourced raw glass pellets from a plant they owned in California, they would be deriving value from a source in California. The glass is not worthless because it hasn’t been converted into bottles yet.
The employee is providing intellectual property across state lines, which is why the state can enforce laws on that value that originated from within their jurisdiction.
The value to the company was provided in Illinois, with bits inside of Illinois. The company doesn't value bits inside California that it cannot access. They compensated for bits they can actually access within Illinois.
>Why would the intellectual property the employee generated be worth nothing simply by originating in California?
It may be worth something to someone in California before it's exported, but that transaction never happened. In this case though the actual transaction took place in exchange for a product inside Illinois.
>In other words, if a bottle manufacturer in Illinois sourced raw glass pellets from a plant they owned in California, they would be deriving value from a source in California. The glass is not worthless because it hasn’t been converted into bottles yet.
This is actually a great example. I buy ammunition online from a company in Oklahoma, where all the business and employees of the ammunition company resides. Yet I pay sales tax here in <my state> based on recent court rulings regarding 'internet sales tax' which state the tax is where the transaction took place (/the finished product goes to), not where the company and/or workers physically resides. It wouldn't make sense at all for me to pay sales tax to Oklahoma, even though the ammunition and even all the physical presence was initially generated there. I pay sales tax where the transaction and actual value to me, the buyer of the goods, actually are. Using the same analogy from this court ruling, you would pay tax on the IP you bought in Illinois and not where it was initially produced California.
>The employee is providing intellectual property across state lines, which is why the state can enforce laws on that value that originated from within their jurisdiction.
The employer is buying IP within their state lines of Illinois. You may be arguing the 'employee' is actually misclassified and is an illegal exporter who is a business owner in California with an export and bit smuggling business. Go after this 'employee' (bit smuggler), not the person buying bits in Illinois.
Your comment confirmed that the value originated in one place, California where the company could not access it, and was transferred to another place, Illinois where the company could access it. The employee was compensated for the transfer of this value. That is interstate commerce, and therefore the jurisdiction of the originating state, California, can apply.
> It may be worth something to someone in California before it's exported, but that transaction never happened. In this case though the actual transaction took place in exchange for a product inside Illinois.
The company in Illinois compensated the employee for their time to generate intellectual property, so the company valued their work and exchanged payment to the employee for exchange of that value. So then the work clearly has value prior to being packaged and sold to the end customer.
> I buy ammunition online from a company in Oklahoma, where all the business and employees of the ammunition company resides. Yet I pay sales tax here in <my state> based on recent court rulings regarding 'internet sales tax' which state the tax is where the transaction took place, not where the company and/or workers physically resides.
The exchange of value and compensation between a company and their employees is governed by employment law. You seem to have conflated the concept of an employee with that of a business or an independent contractor, which are not the same thing, and are not governed by the same laws. When you hire employees across state lines, you are extending your business operations across state lines, and are subject to state jurisdiction. That is the cost-benefit trade-off of hiring outside your state, if you hired employees outside your country, for example in Canada or Mexico, then you would be beholden to inter-national laws governed by treaties.
> The employer is buying IP within their state lines of Illinois.
No, the business is not "purchasing IP within their state lines", the business is employing a person who resides within another state, and therefore the business must abide by the employment laws of the employee's state, as well as the business state of origin. An example of buying IP would be purchasing a legal contract template, or a software license. In the examples I provided sales tax for the state where the purchase originated would apply.
> You may be arguing the 'employee' is actually misclassified and is an illegal exporter who is a business owner in California with an export and bit smuggling business. Go after this 'employee' (bit smuggler), not the person buying bits in Illinois.
I'm unsure if you are trolling or just very confused, but your statement makes no sense and does not fit within the logical framework of United States inter-state commerce law. Employees are not classified as an independent business, they are and extension of a business's operations.
States are divested of the power to regulate interstate commerce. This is squarely jurisdiction of federal government, not the states.
>Your comment confirmed that the value originated in one place
The bits originated in California. The value originated in Illinois. It was valueless to the company while locked in California. Perhaps it was valuable to someone else who never made the transaction in California, but not to the company in Illinois who actually paid for it.
>The company in Illinois compensated the employee for their time to generate intellectual property,
If the employer were simply paying for time then why not hire a prisoner or a nice retired old lady to sit in a chair for 8 hours a day? We both know they aren't paying for time, they're paying for the useful bits they have in Illinois. They want the IP, not to burn people's time.
>So then the work clearly has value prior to being packaged and sold to the end customer.
It has value to the customer in Illinois, not in California. It is valueless to the customer locked up in California. It has value perhaps to the employee in California, but not the employer (customer).
>You seem to have conflated the concept of an employee with that of a business or an independent contractor, which are not the same thing, and are not governed by the same laws
I haven't conflated, I'm showing the courts contradict themselves. They say it's fair game to charge sales tax even with no physical presence, with no tax paid to the other state with physical presence, but then want the exact opposite if you buy IP from an 'employee' instead of bullets from a company. It makes no sense. They want to have their cake and eat it too. One may argue such wishy-washy behavior is 'arbitrary and capricious' which could cast doubt on whether their rulings are even enforceable.
>No, the business is not "purchasing IP within their state lines", the business is employing a person who resides within another state, and therefore the business must abide by the employment laws of the employee's state, as well as the business state of origin. An example of buying IP would be purchasing a legal contract template, or a software license. In the examples I provided sales tax for the state where the purchase originated would apply.
We simply disagree here. I see that they are purchasing IP within their state lines, you see something completely different.
>I'm unsure if you are trolling or just very confused
I could say the same for the state of California. It seems they are trolling to go after someone in Illinois for buying bits in Illinois. Once it was in Illinois it had value, before that it didn't have value to the buyer. Again it was useless to the Illinois company while locked up in California.
California wants to regulate interstate commerce, which of course is flatly unconstitutional. California's tax board is a clown circus of petty tyrants who have tortured and subjugated their victims for far too long.
It's not as simple as that. States can indeed apply their laws to interstate commerce in a myriad of ways, but not to the degree that the U.S. federal government can. States for example can force e-commerce companies to apply sales tax to purchases made by customers based in the given state, even though the business is based in another state. By your logic, the state should only be able to enforce their laws on the resident customer, but that's not true, they can apply their law to the online retailer who doesn't have a presence in the state and force them to collect the taxes on the state's behalf and remit the taxes to the state. [0]
As a second example, a state's minimum wage laws apply to any person who resides within the state, even if that person works remotely for a company based solely in another state. If you have a company in Illinois, your minimum wage is $12.00 per hour. If you employ a person who resides in California for remote work, you still must pay them the California minimum wage of $14.00 per hour. You must also adhere to other labor laws for the employee who resides in California for overtime, maximum hours worked per day, and others. [1]
> We simply disagree here. I see that they are purchasing IP within their state lines, you see something completely different.
We do disagree, but your opinion also disagrees with one-hundred years of U.S. employment case law, and so I would argue is factually incorrect.
Which of course is insane and shows the dire state of constitutional crisis in our nation.
>minimum wage laws
Another horrible kick in the teeth to the poor -- outlawing work for the lowest on the rung of the economic latter. Minimum wage laws are an argument against this legislative tyranny, not for it.
>We do disagree, but your opinion also disagrees with one-hundred years of U.S. employment case law, and so I would argue is factually incorrect.
I count that as a pro, not a con. The last 100 years of legislation in the US is the biggest swath of which ought to be eliminated, IMO. Starting with the 16th amendment.
So basically, you're just arguing against more than a century of essentially universal law.
Yes, basically, and doubly so for the income tax.
That the federal government can’t or won’t step in and help people in the USA out of this morass is shameful. That’s my value judgment.
But I suppose if your company already is in the USA, you should have to deal with the tar pit if it’s multiple jurisdictions. I hear people who WFH for NYC companies have to pay city tax even if they are in some other US state, so this is really no difference.
If they can reach there, legally, it is, by definition, their jurisdiction, whether or not it is their territory, but, in any case, this is about regulation of work within the clearcut territorial boundaries of the state, so there isn't any reaching outside going on. There is a foreign business reaching inside and getting upset that when doing so what they do in that context becomes subject to the laws of the jurisdiction they voluntarily reach into in order to exploit business opportunities available there.
No such department exists in California state government. Major state-level tax bodies in California are the Board of Equalization, the Franchise Tax Board, and the Department of Tax and Fee Administration. Sales and Use Tax is handled by the last.
The main risk, say, as a Canadian, is if I visit a US-based client, then I can't be officially "working while in the US", but it's OK if I do it remotely.
I freelance for my local Canadian company, and if my company sends me to the US, then it's fine, because the client pays my company, who then pays me. The US company is not paying me directly.
I had a friend turned back because he said "the client pays me", when he actually meant "the client pays my company, and my company pays me" (he had an incorporated 1-person company, not freelancer).
When I was purely freelancer, I would say "I'm going to see a client, but it's only social, I'm not paid". Customs would frown, but let me pass. I've even had an agent argue "so you have nothing else to do on a weekday, and your work-friend either?" to which I said "yep, we're computer nerds", and he let me pass.
This sort of stuff is really common.
Judicial complaints, discipline, and files are so secret that you can't get access to them even if there's exculpatory evidence in them. They were not made that secret by the legislature in most cases, but rather by the judiciary themselves (conflict of interest much?). The arguments used to support such secrecy don't even stand up to mild scrutiny. The main reason they cite is that disclosing complaints and discipline would undermine trust in the system. However, that would only be true if inappropriate action were being taken on those complaints.
How about police holding a charge against you they know is incorrect and carries pretrial restrictions? I feel this violates state and federal protections such as the 8th Ammendment's restriction on unusual punishment (because you can't just publish someone you know is innocent of the charged crime) and violations of the rules of criminal procedure. I've seen this happen, and the state police say that it's within their rights to hold a charge that is incorrect and imposes pretrial restrictions. A civil rights attorney I contacted said it was a violation of our rights, but the courts don't care if your rights are violated unless there was substantial financial damage. I also reported it to the DOJ since they have a division that will sue states to change policies, patterns, or practices that violate constitutional rights. I'm sure my submission went right in the shredder. They have so many important things to look at that they don't even care about this.
I had a prosecutor that had the information that it was an incorrect charge and our rights were violated. They also acted outside of the rules of criminal procedure to make sure the court wouldn't talk to us, blocking our ability to secure remote accommodation for our witness (a violation of the Bar's professional standards and an overreach of their authority given the rules of procedures did not allow for this). Guess what. The Bar will not even investigate misconduct claims against prosecutors unless the court declares misconduct occurred. So what are you investigating if you'll only look into after someone else made the determination? Worthless.
I had a recording of a magistrate yelling at the defense, showing bias against the defense (magistrate was a retired police chief and showed blatant favoritism for the trooper), and they violated the state constitution that guarantees defendants the right to be heard when he denied the request to hear a valid petition to dismiss, responding simply with "That's not gonna happen". I submitted a complaint for his behavior. I mean, the yelling was actually an example of misconduct given on the disciplinary board's site. You would think that a textbook example would be investigated. The only response I got was that there was not enough evidence to confirm any misconduct, which would include the uncurteous conducted listed in their site (yelling). How much evidence do you need beyond a recording and witnesses?
I could go on. The point is, nobody gives a shit about your rights (or mine) - not law enforcement, not the judiciary, none of the agencies/boards that supposedly oversee them.
If nobody enforces your rights, them do you actually have any?
California is a very desirable place to live and to employ people, so they can charge through the nose, both in terms of taxes and bureaucracy, but also in terms of housing prices.
Low-tax sunbelt states are less desirable, ergo they have to compete on price, be it taxes, housing costs, or regulations. If Texas or Florida provided amenities that people wanted and a workforce as desirable as California, either there would be a massive influx to those states, 5, 10 million people a year, or they could charge people a lot of the pleasure of living or employing there.
I get that a state would want to prevent scenarios like that, and I think it's somewhat reasonable. I'd argue that a company with a sizable amount of employees in a state indeed can be said to have a business presence there. What's unreasonable is the lack of "minimums". California apparently tried to be reasonable by having the 25% rule, but failed miserably (maybe by design) by not considering very small companies, like the company from the article.
The franchise tax - in that amount and considering the lack of revenue - seems unreasonable too.
I don't know what paperwork is involved, but the 42 pages mentioned for a zero-revenue company with 1 employee sounds not just unreasonable but outright Kafkaesque.
A part of the blame goes to the author for not knowing the laws involved before hiring, but the major chunk of the blame, at least in my opinion, indeed goes to the state for creating absurd laws in the first place.
That's pretty accurate for most of what the California state government does. For example, crushing the young and disadvantaged between a lack of housing availability due to rent control and a lack of new housing construction due to restrictive regulations and zoning.
Employment is really a special arrangement that only makes sense with governmemt intervention, like enforcing overtime or health care or something.
For the uninitiated, this means having all UI elements in French, (OS, software, ...) as well as all things physical like keyboards signs, everything.
Even if for example I am perfectly capable (and actually prefer, to lookup errors messages online for example) of working in English, the OQLF still requires Quebec employees to be exposed to French language first and foremost, regardless of users preferences.
Source: IT Guy being on the receiving end of said directives.
Are employees shipped equipment and served internationalized documentation that defaults to French, and then allowed to choose their preference afterwards for all services and applications?
I know the basis of these regulations is to give Quebec employees not fluent enough in English the power to ask/require a fully French environment. I BELIEVE this can escalate up to the OQLF being able to fine companies not being able to provide a French environment to their employees, but don't quote me on that.
As far as english language software is concerned, most Quebec employees have a varying degree of "letting go" on this matter when confronted to English messages, as long as their internal documentation/knowledge let them know what messages are considered normal in their work process, even if they don't understand fully what that means. The OQLF, however, believe this is a major problem to be dealt with yesterday: IT HAS to make available said software in their French version, if the software publisher actually publish a French version. If not, I believe you are encouraged (forced? not fully sure) to ask the software developer about availability.
Even if the software developper released a broken (or even partial!) French version using Google Translator, it becomes THE version to deploy, no buts.
There’s all sorts of other Quebec/Canadian taxes and fees. Thought hiring contractors pushed the hassle onto them?
If you read the blog post, you can see that I fully knew and complied with the employment laws. (I used Gusto, as it happens). The blog post has nothing to do with employment laws.
The blog post is about income taxes, the franchise fee, Sec of State filings and absurd amounts of paperwork.
I didn’t read the comment above as accusing you of not following the laws, but of being caught off-guard by your business falling under the jurisdiction of the state, and disagreeing with that. You said in the blog post that you were surprised by this, and that implies that you “did not know the employment laws” prior to hiring a person residing within that state.
In other words, you assumed that only laws within the state where your business was registered would apply, which was incorrect.
The point is "the employment laws described are horrendous and a suppressive force on out-of-state employers hiring someone in CA".
It is just too much for a startup to manage multiple locations because of these issues.
If, as a French, I hire a German citizen on a French contact, they will be under French law only.
If I hire them under a German contact then obviously Germans law apply.
$800 of fees in order to be able to hire a software engineer remote from California shouldn't really be a major factor for any tech company looking to hire remotely.
The surprise - a part of - was that hiring a person in California means doing business in California. On one hand, yes, it's a business-related relationship. On the other, doing business has some other well-established definitions - that is, selling products.
> Congress needs to pass a law that says that hiring a remote employee in a particular state does not, by itself, create nexus for sales or corporate income tax purposes.
As far I understand, Congress does not have the authority to override the states in this way. I don't think it should either.
> stay out of California, and never hire anyone who lives there.
This is the correct way to deal with 'greedy states'. Don't give them the time of day.
Remote interstate hiring is obviously interstate commerce, and Congress has clear preemptive authority over that.
The fact that this conversation is this complex gives me a feeling that remote work is going to be the backdrop for a lot of court cases in the next decade.
Yes, it does.
> The fact that this conversation is this complex
I like that you not only inject false complexity into the conversation, but also pretend that that act is some kind of external fact that proves something about the underlying issue.
If you want to have employees in secondary jurisdictions without having to deal with the specifics of operating within them, you can hire folks through a Professional Employer Organization (PEO) like Deel [1]. They'll take them on as full-time employees, pay benefits, handle paperwork - and assign them as full-time contractors to your business. No nexus for you, and full employment for the person working for you. It's not cheap, ofc, but hopefully your employee is generating sufficient value :)
The cost is $800, and the author probably spent tens of thousands of dollars in time and energy figuring out how or if they needed to pay it. That ratio is not a good tax system!
Personally, I wish that the states didn't make it hard to do the right thing and pay appropriate payroll taxes and witholding for state income taxes. But unfortunately, there's a Byzantine process to register the business with the appropriate agencies just to set up payroll.
Stop making it hard to hire people and pay taxes!
I mean every business that isn't a pass-through LLC needs accounting/legal services. If you can't afford them then you probably can't afford to be in business yet.
I think the process is dumb, and could be improved, but really it's not the job of the federal government to streamline any of this. I'd rather that states modernize their systems and regulations for modern businesses. I wish my home state did this (among other things) to attract startups, because its easy and has a high payoff. Unfortunately I think the incentives are broken for politicians and bureaucrats.
As it happens, I did use a payroll service, Gusto.
I mean, you had an office in their state, it just happened to be a home office, so...
Also:
"I have better things to do that deal with idiots in California who think they have the right to impose obligations on my Illinois business."
LMAO.....This does not read like a successful business owner, let alone one who gives reassuring advice.
The part that's irksome about California is the personal income taxes. You can check into Hotel California but you can never leave. The FTB has been known to go to ridiculous lengths (it has been alleged that they went digging in people's trash) to collect or otherwise establish a basis for taxing people no longer in the state.
Many startup founders move out of CA well in advance of liquidity events, establishing domicile in FL or some other low/no-tax jurisdiction to avoid the hefty 13+% rate that CA imposes. I'm sure they are advised by very capable (and well-paid) lawyers. It would be nice if regular people could also get this advice for a reasonable price but I doubt it.
I suspect CA will get even more aggressive as the exodus of high income earners continues out of the state.
And you're just getting started with the states. If you happen to employ someone in a bureaucratic or tax-ridden municipality (e.g. Philadelphia, Seattle, NYC, tons of others), then you are going to have processes to file fees and paperwork with obscure offices and locally sanctioned accountants (looking at your Pittsburgh) and insurance companies.
Example, you are an Arizona company who passively invested in a Neveda company that happens to have California customers. California FTB was claiming the Arizona company was doing business in California and owed it a minimum $800. California started garnishing the bank accounts of Arizona companies that ignored it.
I'm happy to live in California and have a social safety net when I lost my job during the pandemic and had over a year of EDD unemployment payments to keep me afloat. In other states, companies like yours dodge all responsibility for society and their employees (for better or worse)
I heard horror stories dealing with unemployment during the pandemic in states like Tennessee or New Jersey.
Not a fan of government bureaucracy but taking care of your employees is part of running a business.
This article is about income taxes, franchise fees, and absurd levels of paperwork.
Nobody benefits from excessive paperwork and overreaching bureaucracy, not even the unemployed.
Also, considering the high cost of living, homeless encampments rife with 18th century communicable diseases, and staggering crime, I'm not sure how safe your net is.
Now, the state has a bunch of citizens who are unable to meet the basic necessities of life in situations of unemployment or retirement. Is it really appropriate to let these people become homeless? Die in the streets?
California has a lot of things going for it and I appreciate the purpose of taxes, but at this point I'm viewing it as an $800/year incentive to leave.
I’m pretty sure a 1099 also gets you those things, but the contractor covers the full employment tax. So you just pay them more.
California wants to maximize benefit to their citizens as it should... and outsiders should take that into consideration when doing business with entities in California. Also this was probably not straightforward to find out... which is why the author thought spreading the word was important. I appreciate it.
So perhaps you can hire people elsewhere and avoid tax obligations more easily. If so, this is smart business. States and nation-states that let employers get away with such behavior are losing out on reasonable tax opportunities.
Disclaimer: I live in California, and I am not pissed off nor do I find my value threatened by this thread.
A bit like how Starbucks, Amazon, Apple in Europe all have the suffix "Luxembourg, sarl" because being incorporated there means they can pay less "local" taxes in other EU countries, thanks to Luxembourg's tax-haven-establishing PM who even got the job of President of the European Commission afterwards. Thanks for funding the penis-rocket, Jean-Claude!
Original: Don't hire remote employees living in California
Current: I employed a California resident, so now I’m subject to its regulations
It sucks for small companies.
You can adjust for those costs and pay the contractor more, ie you say to the contractor "look we understand you have to pay for your health insurance, self employment tax, etc so we are going to cover those expenses with more pay."
Of course it doesn't feel like it - the contractor still has to pay those things on their taxes which never feels good. So there is the psychology behind it - a W2 employee being paid less might feel better about their tax situation because they don't as much in taxes. Well, they do pay, but that money never reaches their bank account.
It sucks, but it's just the overhead of being a business. Businesses gets tons of benefits in the US and this is just the other edge of that sword. As others have noted, this could just as easily about any of the pitfalls of hiring in your same state, across states, or across countries. Hiring international folks is a whole rats nest of complexity that business owners need to be aware of.
I mean, not to be too harsh, but... Welcome to inter-state business operations. It's really up to the state what is "their business" when you are employing one of their citizens; that's the consequences of a system made of a federation of states, each state can set its own rules above-and-beyond federal rules in a pretty wide latitude.
There's a reason people hire lawyers to handle this stuff.
($800? Are we all really talking about a measly $800!?)
> I decided to do the right thing by switching to W-2 payments.
BTW, there's nothing inherently morally wrong with 1099/contract work. There are additional costs for the contractor, but you simply build that into the rate.
But when doing business that's partially in California, then yes, it's a significant entanglement.
California's a great source of tech workers, and bigger companies shrug off these costs. They're charging what the market will bear. But, like TFA says, I'd do my research if you're a smaller company outside California looking to hire someone in California.
Congress literally can't pass the laws the article proposes: it does not have that power. Would be nice if it did, would certainly make the country a better place for the vast majority of people, but as it stands: each state is basically equivalent to a country, with a formal agreement to collaborate as part of a federation, but with express limitations on how much the federation as a whole gets to "interfere".
I agree that California is bad for remote hiring, and I believe that this is a novel competitive advantage for other states to capitalize on. Asking Congress to "fix" California would starve North Dakota, for example, of the opportunity to make it super tax-cheap to hire remote employees.
Let California tax-implode during a time of unforeseen redistribution of labor.
May California go through many tax-reforms, appropriate to modern practices and expectations, sparked by cases like these, but may it never tax-implode.
> Let California tax-implode during a time of unforeseen redistribution of labor.
Yes. "You made your bed, now lie in it" is good policy methinks.
I have also had first hand experience with simplification: Medium businesses will aggressively optimize over these simplifications. Big businesses will try too if they can apply. The government then starts reverting these simplifications with amendments that make the situation worse than when it started.
They handle the paperwork, and all the state compliance. The markup over handling this yourself is smaller than if the agency locates the employee themselves.
Any national agency like Manpower can handle this, as well as smaller local agencies.
Then you have a vendor and not an employee.
Get competent legal and tax advice before doing this. And I can't guarantee any particular agency will be interested in dealing with a small operation. Better luck with a small local agency in the state/province in question.
So I'm a bit tickled to see someone living there bitching about tax agency overreach.
() it cost more in additional tax prep expense than the final return amount was, additional salt on the wound
Take a step back and think about what you're saying. It really should not be that difficult to hire one person.
First, just because they say you owe something, doesn't mean you do. Just make sure your bank isn't in CA before standing firm. Ask me how I know.
Second, 1099 sounded like a better deal anyway. Why make things complicated for a non-entity (yet)?
He depends on California's business environment (their highly educated and productive labor pool), and then turns around and complains about California's transparency requirements, which from my first impression seem to protect the state from shady business practices.
Yes, if you own a business and have W2 employees, there are extra pieces of information the state needs from you. You can't just throw up your arms and say that they "demanded information that is none of their business." Maybe I should tell that to the IRS that the next time they "demand" my W2 and 1099 forms, I'm sure that they'll say "you're right, it's none of our business."
I also want to point out that California doesn't have "ridiculous" taxes, there are 8 states with higher overall tax burdens, and the next 15 states with lower overall tax burdens are within 1 percentage point difference: (https://wallethub.com/edu/states-with-highest-lowest-tax-bur...)
Overall, I would have a hard time believing that the world's 5th largest economy is a bad place to conduct business.
"Nobody lives in California, there's too much traffic."
If you are thinking of starting or running a business, you should have at least a brief consultation with a small business lawyer on your to-do list, or else you'll end up having to write a blog post.
I am currently paying an accountant to file my California tax return (along with my US federal tax return).
Maybe getting an accountant or a financial adviser would help in situations like this.
I do agree with the notion that there should be a single way to do taxes across the country. But from everything I hear and understand, that'll never fly in USA "because freedom!". I think that in most of Canada (Quebec possible exception), you essentially file federal taxes and then provincial taxes are a mirrored percentage of that? I think law is more complex than that but a regular person's experience feels like it.
Context: "The head of the Chicago Republican Party, Chris Cleveland[author/OP], has accused the Chicago Board of Elections of 'massive incompetence or massive fraud'"
There is a ton of content on how to code in X language or understanding X technical concept, but I haven't discovered too much content on starting a small business in X state.
OP wanted to be an employer and "make jobs" for the sake of printing job numbers, rustbelt mentality.
if they had more employees, elsewhere, it wouldn't have happened, if they actually did have the relevant counsel it wouldn't have happened. but they aren't able to or willing to afford either. lesson learned. likely the wrong lesson learned.
Manpower is large and well known example of such an agency here in the USA.
Get legal and tax advice to see if this will work in your situation.
Ahh, the Muskian, "I couldn't possibly be wrong so they are coercing and lying, and I am the victim."
I wouldn't worry about it, but your counsel or reading comprehension skills might lead you to a different conclusion
It doesn't make sense anymore
baby boomers: get a job and be set for life
gen z: change job every 1/2 years, all online/remote, work from anywhere, move to another country
things are moving fast, and regulations are 50 years behind
Original title is "Don't hire remote employees living in California"