A company located in California says, “Some questions are still coming up about compliance with the California 7% income tax withholding requirement on payments we make to out-of-state artists for services here in California. If they have a California resident agent and our check is payable to the agent, does that eliminate the withholding requirement?”
Answer from Marianne Couch of COKALA Tax Information Reporting Services:
No. You still must withhold 7% California nonresident income tax, because you must treat the payments as if paid directly to the artist. Publication 1017 of the California Franchise Tax Board, says, in FAQ 88:
“Is withholding required if the compensation paid to nonresident athletes or entertainers is made to their California agents or promoters? Yes. Withholding is required even if the agent or promoter meets one of the exemptions listed in FTB Pub. 1017, Resident and Nonresident Withholding Guidelines, page 8, question 34. Since the athlete or entertainer performed the service, the athlete or entertainer is required to report their compensation for the performance and is solely entitled to the entire withholding credit.”
And, the California FTB has no equivalent to the federal Central Withholding Agreement under which the agent withholds tax when it pays the artist. To avoid California nonresident withholding, the artist would need to apply directly to the FTB for relief by using Forms 588 or 589 or, if qualified, give you an exemption declaration on Form 590.
Marianne Couch, JD Principal, Cokala Tax Information Reporting Solutions, LLC Marianne Couch, JD, of the Cokala Tax Group, is an advisor on U.S. federal and state tax information reporting compliance. She is a frequent lecturer at major tax conferences and the author of numerous published articles and the Master Guide to Form 1099 Compliance. Prior to co-founding the Cokala firm in 2007, she served for many years as Research Director of Balance Consulting, and chaired special training and advisory services provided to large organizations and academic and nonprofit institutions. She was previously the executive director of the National Association of Form 1099 Filers, Inc., and a member of the IRS Information Reporting Program Advisory Committee (IRPAC), where she served as Cha! ir of the IRPAC Subcommittee on Small Business and Self-Employed (SBSE) tax issues. Click here to view an archive of Marianne’s blog posts on tax information reporting topics.
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