One of our customers recently informed us of the following:
"In accordance with the CaliforniaWe are not exempt (the only exemption is if you file a California Tax Return, which we do not).
Franchise Tax Board, Publication 1017
and Revenue and Taxation Code Section
18662, we are required to withhold 7%
from all payments made to
non-California service providers for
services rendered or rents paid.
California is probably the most aggressive state when it comes to out of state business and I'm not sure of the best course of action.
I found this info when looking at the official documentation :
Are there exceptions to withholding?
Yes. Withholding is not required if
one of the following exceptions is
- The individual, S corporation shareholder, or partner is a California resident.
- The payee meets one of the exemptions on Form 590, Withholding Exemption Certificate.
- The total payments or distributions of California source income to the nonresident are equal to or less than $1,500 for the calendar year.
- The payment is for goods.
- The services provided by the nonresident are not performed in California.
- The nonresident payee or the withholding agent receives written authorization from us waiving the withholding.
- The payments are income from intangible personal property, such as interest and dividends, unless the property has acquired a business situs in this state.
- The payments are compensation from a motor carrier providing transportation in two or more states, subject to section 11504(b) of title 49 of the United States Code.
- The payments are wages paid to employees. For information on employee wage withholding, contact California Employment Development Department.
- The payee is a bank or banking association.
- The payments are made to a nonresident corporate director for director’s services.
- The distribution is exempt income.
- The partner has certified that the income was previously reported on the partner’s California tax return.