State Goes After Non-Resident Seller for Income Tax

by: Bill

Why do you collect sales tax for Wisconsin if you live in Florida?
If you are collecting sales tax then you are admitting that you have a presence in Wisconsin and owe income tax to them.

by: Disgruntled_Seller

Yes and no, study apportionment for the state of Wisconsin and I think you might find your answer. On the surface you will need to determine why Wisconsin concludes you are in state. Nexus will factor in.  

by: r2678

Have you ever visited Wisconsin for a trade show or for business? They could consider that as "continuing presence." I also live in Florida and inherited property in North Carolina. For that I had to pay tax to NC on my entire income.

by: comments

Is the state going AFTER you? If you are collecting sales facilitator/nexus tax for WI why would you think you wouldn't have to file a tax return for the proceeds you collected? Perhaps you can provide the text of the letter as to their reasoning?

If you are collecting sales tax and not remitting it or "paying yourself back" for tax you paid as a dropshipper you were probably reported for tax violations and this is a step in the legal process and you probably should consult a lawyer.

If none of these. Maybe provide more info? Is this a nexus/facilitator compliance issue? Did you sell directly or on a marketplace. Where did the sales take place? Did you possibly remit the sales tax as a resident of WI in error? What is the sales volume?

I have not heard of this happening before. I am thinking an error in remission or other user error.  

by: iheartjacksparrow

The OP's letter is really confusing. He's paying sales tax to Wisconsin so they want him to file a state return?  

by: Sierra

I would need to know more about WHY John is remitting sales tax to Wisconsin.

Did he sell in-person at an event there?

Did he sell something online to a Wisconsin customer (looks like WI nexus is $100k)?

Does he sell on a marketplace that facilitates the sales tax and he's confused about how that works?

by: my2cents

Marketplaces collect and remit sales tax for sellers on those marketplaces.  So a seller in Florida shipping an item into Wisconsin, the buyer would be charged the appropriate sales tax for Wisconsin and the Marketplace would remit those funds to that state.

IDK what is really going on for the OP.  Are they selling on a Marketplace that collects and remits sales taxes to the appropriate states or do they have their own website.

We need more details from John.

by: frustrated

Read it again folks, they said INCOME tax.  

by: I_Fix_Dolls

Even in a marketplace the venue collects tax for the state you reside in, not the state you sell to. You (the seller) never receive the tax money, it goes directly to the venue. If "John" is paying Wisconsin state sales tax, they assume he is living in Wisconsin at least part time. John is doing it wrong.

by: danny

Lot's missing here but completely plausible. The Sourth Dakota v Wayfair sales tax ruling set the stage for other taxes or applying other laws against out of state businesses or people doing anything in that state.  A nexus trigger could be anything and be different for sales tax versus income tax. And they will keep trying to move the needle.  You live in FL have a 401k holding a fund containing a NY muni bond..... wait for it, it's coming.  Watch when you travel to, 30 days can trigger (certain residency) clauses in some states, like MA.

by: Sierra

@frustrated - I think my questions were relevant, despite them being about sales tax because I don't know WHY John is remitting sales tax to WI. Having that information would be very useful.

If John had done an art fair or flea market or other type of in-person selling event in WI, he might owe WI income tax on the income he earned in-state, even if it was just a short one-time event.

We don't know if John has EVER lived in WI; if he had lived there at one time, maybe wires got crossed somewhere and the state income tax agency didn't get the memo that he's relocated to FL.

I have seen posts in various forums, usually from newbie online sellers, who don't understand how state income tax works and they truly believe they need to file state income tax in every state they sold to that year!

What income does Wisconsin tax?
* Nonresidents - Wisconsin taxes only your income from Wisconsin sources.
* Part-year residents - During the time you are a Wisconsin resident, Wisconsin taxes your income from all sources. During the time you are not a resident of Wisconsin, Wisconsin only taxes your income from Wisconsin sources.
(Source: https://www.revenue.wi.gov/Pages/FAQS/pcs-npr.aspx#npr2)

Here are some other reasons why a non-resident of WI might owe INCOME TAX:
https://www.revenue.wi.gov/Pages/FAQS/pcs-npr.aspx#:~:text=Non
residents%20%2D%20Wisconsin%20taxes%20only%20your,your%20income%20from%20Wisconsin%20sources.

by: railady

@ Sierra - thank you for the detailed information.  After buying items from companies in several different states, I've learned that each state can have different laws governing how sales  tax is charged on non-residents.  I'm sure the same is true for income tax.  

IMHO John would do well to ask a tax attorney to investigate, find out why he got the demand to pay INCOME tax to Wisconsin, and get the matter finalized one way or the other. Certainly John doesn't want Wisconsin state government hounding him and government does seem to pay more attention to attorneys than ordinary citizens.

That said, it certainly would have been much more helpful if John had provided MORE information about this situation right up front. It surely sounds like John is selling either through his own website, or in person at trade show type venues. Selling through eBay or another ''marketplace'' that collects and remits sales tax for ALL states would (or at least SHOULD) not have generated the demand for INCOME tax.

by: railady

To add another comment - apparently Wisconsin has a law that provides for it to collect income tax from non-residents, as pointed out above, on what is considered "Wisconsin sourced income."

I wonder how much sales tax John remits to WI, maybe it wasn't enough in the past, but finally totaled enough to "trigger" the demand for income tax.    

by: Sierra

@raillady - My pleasure!

Do you have a source for the law you mentioned? Are you saying we should all be cautious about selling to Wisconsin? I can't remember the last time I had an order from there, but at least I've never set foot in the state. LOL!  

by: Lightning

I think if John has to pay INCOME tax to Wisconsin, he will be able to deduct that amount from his Florida INCOME tax that is due.  Just like if you live in a neighboring state to the one you work in.  You have to pay taxes to one state as a Non-resident, and then deduct that paid amount from the taxes you owe your resident state.

I don't believe there is a situation that you can be paying full INCOME taxes to 2 states, due to the laws against double taxation.

by: gemjane

I am wondering if someone is trying to scam the OP....

by: Fruitylovesyou

go straight to your us senator or representative under constituent services.  Every small biz will be buried due to these states.  And quite honestly I think sellers need to rethink who is really the seller in these transactions. What control do you really have. Think about it.

by: COVID-19

Americans claim they hate lawyers.....until they need one.

by: my2cents

@frustrated
John said he resides in Florida.  Why would he need to pay income taxes in Wisconsin??

@lightning

I don't believe Florida has a state income tax.

by: mjr55

Are you a part-time WI and part-time FL resident? I know a lot of states are cracking down on those who live there part time but try to claim it as their residence for tax purposes, etc.