Question

Military spouse California source income

Forum|Forum|6 years ago
July 11, 2019
3 replies
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Military spouse here. My active-duty husband and I claim Texas residency and are currently stationed in Virginia. I work on a freelance/1099 basis for a number of California-based companies. I work 100% remotely and have never visited the state for work. I was under the assumption that state taxes are always the state you live in so have never filed California taxes but I just got a notice from the state that I need to file and that I owe potentially tens of thousands of dollars in taxes. Does MSRRA apply here? Military friends are telling me that I shouldn't need to pay California anything since residency is Texas but my CPA thinks that the wording of California's law (which may not have been updated since the latest iteration of MSRRA?) make it sound like I do owe on California-source income.

Critter

You do not owe CA ... you did not live or work in CA and your residency is TX. Even if you were a civilian you would not pay CA as this income is not considered CA sourced if you are self employed.

Rainman12

https://www.ftb.ca.gov/forms/2018/18_1032.pdf = Current version of CA tax guidance for Military; See Page 12 for MSRRA. Partial quote: "California Source Income – For the Military Servicemember’s Nonmilitary Spouse Who Meets the MSRRA Requirements. California source income includes income from all of
the following:
• Real or tangible personal property located in California.
• A trade or business located in California except to the extent it receives income for services performed by the
MSRRA-qualifying servicemember’s spouse. [italics added].

Suggest you respond within that context, including evidence of TX residency for you and Military spouse and PCS orders validating accompanied tour(s).

T

TomD8

Did the notice you received explain why CA thinks you owe them taxes?

CA can tax a non-resident only on CA-source income.

If you never set foot in CA, then you have no CA-source income. (Income is "sourced" based on where the work is actually (physically) performed.) As Critter said, your military status is irrelevant.

CA likely thinks you actually worked in CA. If so, you'll have to set them straight about that.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.