19 ms·

I employed a California resident, so now I’m subject to its regulations

• arcticbull 4y ago
  > Nexus should only be created in the traditional way: by selling something in the state, or by having a physical office there. Without this law greedy state governments can send companies nasty surprises, as they did to me. I mean, you had an office in their state, it just happened to be a home office, so...
• datalopers 4y ago
  Yeah, we hire remote, as long as you live in one of the two states we’ve established a presence. The cost and overhead is way too much otherwise (and we do use a PEO, that doesn’t remove the business license and taxation requirements). It sucks for small companies.
• silexia 4y ago
  I own a business and New York is the same way as California, if not worse.
• elchin 4y ago
  Would this be avoided if the employee was kept on 1099 instead of switching to W-2?
  • deleted 4y ago
    [deleted]
  • taormina 4y ago
    25% of more of your payroll is what the article said, so I wouldn’t assume so, but IANAL
    • r3dey3 4y ago
      1099 isn't payroll. It's paying a sub-contractor which is completely different.
    • deleted 4y ago
      [deleted]
  • core-utility 4y ago
    Maybe, and he eludes a bit to the employee originally being 1099, but California has made 1099 all but extinct with AB-5
    • w0mbat 4y ago
      Allude not elude.
      • core-utility 4y ago
        Thanks, learned something new.
    • dragonwriter 4y ago
      AB-5 added exemptions allowing more employees to be contractors to the pre-existing rule articulated, based on prior statute law, by the California Supreme Court.
    • vmception 4y ago
      right but you can also just wait for California to challenge the 1099 distinction 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.
  • JJMcJ 4y ago
    Or by having a third party, a temporary agency, actually employee the resident of another state. 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.
• rich_sasha 4y ago
  Soo... when people tell me EU is an evil behemoth ran by a grey mass of Eurocrats in Brussels, delivering no value but complications... erm no, I don't think so.
  • troppl 4y ago
    You do realize that it's the exact same way in the EU, if not worse? In the EU, a company can't even hire you if you're from another EU country where your company doesn't also have a seat there...
• _moof 4y ago
  Is this really unique to California? He had 100% of his employees in California. (100% of 1, but still.) I'm having a hard time imagining that no other state in America would consider that "doing business in the state."
  • whimsicalism 4y ago
    It's an absurd article, capitalizing on predominant anti-California sentiment that has become popular to talk about in the last ~5 years or so.
    • kitten_mittens_ 4y ago
      I'm from the mountain west, and I'd say anti-California sentiment has been around my whole life (born right after the Wall fell). Even from my Appalachian migrant parents.
      • whimsicalism 4y ago
        In the national media, it has clearly accelerated in the last few years. 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.
      • _jal 4y ago
        I find this map surprisingly accurate. https://www.fitsnews.com/wp-content/uploads/2020/01/map11.jpg https://www.fitsnews.com/wp-content/uploads/2020/01/map11.jp...
        • adamrezich 4y ago
          someone tell North Dakota that we in SD don't actually hate them, it's just jokes, we hate California just as much as everyone else
        • whimsicalism 4y ago
          Not really, many of these are more "joking" dislikes than actual strong disdain/dislike that California, New York, etc. engender.
• anonuser123456 4y ago
  >But a W-2 an employee gets payments into social security, unemployment insurance, various protections 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.
• whimsicalism 4y ago
  So you do business in California and are somehow surprised when California regulations apply to you? $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.
  • gadrev 4y ago
    It was a one-employee "company" (besides the founder). I don't think that qualifies as "any tech company". Just try to put yourself in the owner's shoes.
    • whimsicalism 4y ago
      If they are paying tech company wages, then $800 to be able to hire as many employees as you want in California is a drop in the bucket.
      • avmich 4y ago
        My friend, who was trying to raise a startup, didn't get payments for the product (too early), didn't have VC funding (yet), had to close the California presence because of such expenses.
        • whimsicalism 4y ago
          your friend was somehow hiring engineers in California and an $800 expense was the blocker? sure.
          • avmich 4y ago
            No, he didn't hire, but had a registered presence. This fee applies anyway, and for him it was too much to justify.
        • deleted 4y ago
          [deleted]
• r3dey3 4y ago
  At least California is generous enough to require at least 25% of payroll. Most states, if you have even a single employee in that state you need to register as a business in that state (and pay associated filing fees and taxes). 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
  • e40 4y ago
    Words of advice, though, if the business is in CA don't hire contractors via 1099 unless the work really does fall under the legal definition of what a 1099 can be used for (in CA). If they appear to be an employee, in any way, then they should be an employee. The CA EDD loves auditing and assessing back taxes and fines. And all it takes is a disgruntled contractor to call the EDD.
    • Enginerrrd 4y ago
      >And all it takes is a disgruntled contractor to call the EDD. 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.
    • aquark 4y ago
      Any idea how CA handles (small) foreign companies hiring contractors in CA? 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?
      • hnburnsy 4y ago
        They probably only go after those in the US as they can garnish bank accounts at banks that they can reach as they currently do to Arizona businesses they claimed were doing business in California... "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-office-files-lawsuit-us-supreme-court-challenging https://www.azag.gov/press-release/arizona-attorney-generals...
• maccard 4y ago
  This is the textbook example for "hire an accountant".
  • zenlikethat 4y ago
    Yeah, starting a business takes capital, one of many reasons why is hiring pros to help you sort stuff like this out.
    • maccard 4y ago
      Yep. Particularly if you're at the point of hiring an employee, you can afford at least one meeting with an accountant.
• zenlikethat 4y ago
  So OP wanted to become an employer but had no idea what being an employer actually entailed or did any basic research into things like the fee to do business in California. Got it. 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?
  • ccleve 4y ago
    I was fully aware that being an employer means filing all employer-related paperwork, withholding, unemployment insurance, and dealing with various employment-related regulations, and I did that. 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.
    • RC_ITR 4y ago
      I mean you seem to have this idea that your business is “you” but your business is “you and your employees”. 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.
    • otterley 4y ago
      Also your conclusion (“don’t hire remote workers in CA”) doesn’t necessarily follow from your specific situation. If you had 9 existing employees outside California, then hired your 10th from California, you wouldn’t have had this issue and you’d be focusing on your business instead of ranting on a blog post.
    • zenlikethat 4y ago
      > My income is none of California's damn business 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?
• vmception 4y ago
  eh, the consequences guide the compliance I wouldn't worry about it, but your counsel or reading comprehension skills might lead you to a different conclusion
• mattnewton 4y ago
  I started to generall disagree with this post, having had similar experiences with many other states harassing me to make sure I didn't need a return there because of some information that tripped up their systems. I know from experience at least two other states would have bothered him (CT and NY). The California franchise fee is high, but it's really not high compared to the cost of a single W2 employee. 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.
  • QuikAccount 4y ago
    > However I can strongly agree that their needs to be tax simplification and the current state of affairs is a mess. Very much worth mentioning that companies like Intuit spend money hand over fist each year to keep the tax code complicated.
    • HighPlainsDrftr 4y ago
      I very much agree with that statement. It's been a decade ago since I read the article about this - and I'll try to fine and post it after I post what I read. 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).
  • cardiffspaceman 4y ago
• rickreynoldssf 4y ago
  That's just a rookie business owner mistake. He should have used something like Justworks to handle the "employee" part of the business until he grew enough to have a dedicated HR person.
  • cyral 4y ago
    +1 for Justworks. There are other competitors like Gusto (I think?) that do it too. They have the tax and regulatory stuff figured out for every state and city and are basically the actual "employer" for your employees. I think it's called a PEO
  • site-packages1 4y ago
    Totally off topic, but I loved JustWorks sooooooo much. When we got big enough to hire an actual dedicated HR department, people were unhappier in comparison, though JW is pretty expensive past a certain scale so it makes sense. It's like Heroku for the employee part of the biz: use it starting out and until you scale and then switch to something less expensive but more time consuming.
  • ccleve 4y ago
    Uh, Justworks is for employment and payroll, not income taxes or Secretary of State filings. The blog post is about the latter. As it happens, I did use a payroll service, Gusto.
    • rickreynoldssf 4y ago
      No. When you use Justworks, they are the actual employer for your employees. So you're not doing any business whatsoever in another state.
• markovbot 4y ago
  • ccleve 4y ago
    Moron here. I did pay employment-related taxes. I don't owe income taxes, because I had no income there. This blog post is about excessive paperwork, surprises, unnecessary income tax filings, and the franchise fee. And the fact that California is uniquely aggressive among states in pursuing this stuff against a startup.
  • paxys 4y ago
    These days anything anti-California and anti-liberal is guaranteed to be voted to the top over here regardless of quality of the content. It's crazy how things have changed over the last year or two.
• duped 4y ago
  You just learned a valuable lesson, there is a regulatory burden to run a business. There are all sorts of issues like this regardless of whether you hire in California or any of the other 49 states. 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!
  • cyral 4y ago
    I really wish the US came up with a solution to this. It would help a lot with making it easier to start a business if there was one online portal where you could go to do this instead of registering for 5+ systems for a single state and being clueless about what your requirements are for other states (unless you can afford an accountant who is very familiar with it all).
    • duped 4y ago
      > unless you can afford an accountant who is very familiar with it all 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.
• teg4n_ 4y ago
  It just sounds like this person doesn’t know how to run a business and is looking for someone to blame.
  • 0xbadcafebee 4y ago
    If he runs in the next Republican primary he might sweep the field
• standyro 4y ago
  Well, good riddance. 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.
  • ccleve 4y ago
    I did that. I paid all of the employment-related taxes and filed all of the paperwork, including with EDD. 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.
  • Clubber 4y ago
    Sounds like from the article California is actively disincentivizing companies from hiring W2 from there on a remote basis. If companies are incentivized to do 1099, how is that helping anybody?
  • collegeburner 4y ago
    Some people prefer to "take care of their employees" by paying them well instead of funding a social safety net. That's not "dodging all responsibility". How about you just take a higher paycheck and save it yourself? As for me, I won't hire in California now for exactly this reason, I am not going to fund their soycialist programs (like EDD unemployment).
  • deltarholamda 4y ago
    Okay, but the social safety net is paid for by people and businesses. If you make the people miserable and the business difficult, your social safety net cannot be funded by good feelings. 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.
  • 4y ago
• powerslacker 4y ago
  Very well written. Mirrors my own experiences with the California tax system as well. > 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.
  • dragonwriter 4y ago
    > As far I understand, Congress does not have the authority to override the states in this way. Remote interstate hiring is obviously interstate commerce, and Congress has clear preemptive authority over that.
    • powerslacker 4y ago
      I suppose it could be, since the commerce clause is also routinely cited as justification for "war on drugs" type of efforts. However, I don't think it is as clear cut as you make it. A contract executed in one state is not automatically interstate simply because the parties to the contract reside or operate in different states. It matters where the contract is executed. A contract can state things like "will be judged in an XYZ court according to XYZ law".
      • dragonwriter 4y ago
        Choice of laws clauses don't really impact whether commerce is interstate. If goods or services are crossing state lines, it is interstate commerce (and not in the fuzzy might-indirectly-impact sense of Wickard v. Filburn, though even that is settled law), regardless of whether there are choice of laws clauses in a contract governing the trade that specify a particular state laws.
        • powerslacker 4y ago
          Just because bits are travelling across the wire and the digital artifacts happen to stored in Kalamazoo does not mean services or goods have crossed state lines. Otherwise, using a telephone to talk to your employee or customer in another state would involve crossing state lines. That simply isn't the case in the normal course of business. 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.
• mumblemumble 4y ago
  This should probably be expanded to something more like, "don't hire remote employees living in a jurisdiction whose employment laws you don't know." 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.
  • jrs235 4y ago
    This became a concern last year when companies were allowing Work From Home (WFH) but people were taking it as Work Remote. WFH means working from HOME not from a coffee shop, library, etc. And it certainly means not while in another state/country. It complicates taxes. I can see companies that allow WFH or Remote Work clarifying and forcing employees to sign an agreement regarding these clarifications and the employee must indemnify the company and pay for any additional tax compliance expenses and/or government fines [to the company] should they violate them.
    • alistairSH 4y ago
      I can see companies that allow WFH or Remote Work clarifying 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.
      • Teknoman117 4y ago
        My employer did the same thing. They told all of us that they understood if we moved around because of the changing situation, but not to work from outside the state without approval.
• Areading314 4y ago
  This is pretty basic "running a business" stuff. If you think paying a few hundred to an accountant is a nuisance, you're probably not that serious about running a business anyway.
• jweir 4y ago
  "But a W-2 an employee gets payments into social security, unemployment insurance, various protections, so it’s the decent thing to do, even if it costs a bit more." 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.
• NoraCodes 4y ago
  "I didn't want to comply with the employment law in the only state in which I had employees" is not a good reason to write a blog post.
  • ccleve 4y ago
    Reread the post. I did comply with employment law, fully. The blog post is about income tax filings.
    • jasonlotito 4y ago
      Stop being so pedantic. It's worthless. You had an employee, and so you were doing business in the state (this is business 101 stuff). By having an employee, you were subject to certain laws California has. e.g. You literally didn't comply with everything you were required to.
      • unethical_ban 4y ago
        Worthless is CA charging every person even attempting to make money in CA (or in this case, in partnership with someone in CA) so much money and wanting 100 pages of forms filled out.
• ComradePhil 4y ago
  Lots of pissed of Californians in the thread because it reduces their value... but if you think from outside, it is very reasonable argument... and this article is a service to the people who would otherwise not have thought about this. 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.
  • collegeburner 4y ago
    Yeah for years Calis' massive economy has allowed them to squeeze more from people in taxes and fees and laws. They've managed to basically pass laws for the whole country a bunch of times by moving standards in such a large economy. But now they're going too far, and capital is leaving, and people are leaving, and the state is collapsing slowly and the urban areas are going bad and I will not cry while this happens. Especially not after the years of sanctimonious holier than thou bs out of Calis about how much better they are. I just hope all the refugees don't vote for the same BS when they flee to Texas.
  • xbar 4y ago
    Hiring in California is expensive and burdensome. Further, I think California is pretty sophisticated in its remote-business tax-hunting capability. That does make it a relatively bad target for hiring remote employees in a global-competitive environment. 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.
  • netsharc 4y ago
    Without such rules as the article describes, businesses predominantly active in California would just incorporate in Delaware and say "You can't touch us!"... 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!
• tptacek 4y ago
  This is true of employment, remote or otherwise, all over the US. Wait until you start an LLC with partners in different states and incur personal state tax liabilities in states you've never set foot in. This is a complaint that more suggests the lack of experience this person has with employment than any problem with how tax law works.
  • hollerith 4y ago
    Sure, but if his employee had been living in, e.g., Missouri, he probably wouldn't have to pay anything near $800 a year (the minimum franchise tax in CA) like he in actuality has to, nor pay his accountant to fill out a form 42 pages long.
• dmabram 4y ago
  California is unusually aggressive compared to other states. We had an employee with a home address in California who never set foot in California during the period he worked for us. We paid his withholding correctly to CA. Received a similar letter from the CA franchise tax board that our business also owed a CA return with a minimum $800 filing fee. They only accepted correspondence by fax, no email, no website. Since he was never in CA during his period of employment, we didn't legally owe the return, but CA said the onus was on us to somehow prove he never set foot in CA. Providing his personal credit card receipts showing daily charges for meals and such in DC (where we were located)over the entire period of employment was deemed not good enough. Ultimately we gave up and just paid the $800, it was costing more in time to argue. I've never had similar issues regarding employees in other states. If there were disputes, issues or mistakes related to tax filings, there was a reasonable process for communicating with the state tax board and resolving.
  • tshaddox 4y ago
    > but CA said the onus was on us to somehow prove he never set foot in CA. 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?
    • cryptonector 4y ago
      No. If CA were to issue a warrant for your arrest and an extradition request, you'd soon be in a world of pain. You can't do the same to CA.
    • hnburnsy 4y ago
      They just garnish your\your businesses' bank account, no extradition needed...
  • arrosenberg 4y ago
    > They only accepted correspondence by fax, no email, no website. 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.
• TheRealPomax 4y ago
  If only congress had that power, but the United States of American really are the "united states" of America, not "the country of America", and even folks who live in the US often forget that the federal government really doesn't have a lot of power in regulating how states run their affairs. 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".
  • powerslacker 4y ago
    Interesting that your post is being downvoted for some reason though many have already made this point.
    • xbar 4y ago
      Did other people reach the same conclusion: that it would be good to have a stronger Federal government that can take over states' rights? 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.
      • TheRealPomax 4y ago
        Conversely: if California tax-implodes, tens of millions of people are going to be affected, and not in the "no avocado toast for you" sense but in the "you can't make your rent anymore, I hope you like living on the streets" sense. May California go through many tax-reforms, appropriate to modern practices and expectations, sparked by cases like these, but may it never tax-implode.
      • powerslacker 4y ago
• shadowgovt 4y ago
  > So now they’ve lied to me about my income and demanded information that is none of their business. 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.
• andrewljohnson 4y ago
  This is less a California issue than a US remote business issue. Any number of states have labyrinthine regulations regarding who must file corporate income taxes, who owes state sales taxes, how you must acquire unemployment and disability insurance, etc. 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.
• pipeline_peak 4y ago
  If an $800 minimum franchise tax is a lot of money to a rookie business owner, you're in for a rude awakening. 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.
• beej71 4y ago
  It's also not that hard as a W2 to leave California. I just had to do partial tax returns for each state. California hasn't pestered me since I left nearly a decade ago. I've also done 1099 work for California companies from outside California without hassle. (I loved living in California, for the record, but I always crave change after a while.) 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.
• mixmastamyk 4y ago
  Yes, CA FTB is gangsta, but I don't support the conclusion. 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)?
• deleted 4y ago
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• outside1234 4y ago
  [flagged]
• morpheuskafka 4y ago
  If I read the linked FTB page correctly, either 25% OR $63,726 of payroll is the threshold. So pretty much one, maybe two employees should do it regardless of percentage.
• rajangdavis 4y ago
  My takeaway from this article (and from my experience incorporating and dissolving an LLC in California) is that there needs to be better education regarding how to run a small business. 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.
• teaearlgraycold 4y ago
  Alternative title: Even very small businesses need accountants
• outside1234 4y ago
  [flagged]
  • cbpowell 4y ago
    "People like this person"... did you even read the post? OP is nowhere near California, doesn't benefit from California's infrastructure at all.
    • outside1234 4y ago
      He is operating a business in California when he has an employee there. That employee is using infrastructure.
• rmk 4y ago
  I think the notion that people do not get social security credit if they are on 1099 is flawed. People on 1099s pay their half of the payroll tax that would be incurred by an equivalent W-2 employee. This is known as the "Self-Employment Tax". And it is for funding the Social Security obligations that they owe. 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.
• ipsin 4y ago
  I also pay the $800 tithe, because I live in California and manage my marginally unprofitable property LLC in another state. 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.
• pclmulqdq 4y ago
  As an ex-New York resident, I can safely say that I will never be living in a state with an aggressive revenue department again. California is the only state worse than New York. The cost of dealing with their revenue department has been far greater than the amounts on the bogus demands that they send, and somehow you have to spend the money dealing with them even if you plan to pay up. They also want you to prove to them that you don't owe more by going through an exhaustive process that is full of footgun questions. 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.
  • s1artibartfast 4y ago
    It's almost as bad as the California bills proposing to garnish future earnings of residents that move out of state
    • 93po 4y ago
      To be fair, the IRS does this to all Americans who leave the country and renounce citizenship. For 10 years of your future income.
      • s1artibartfast 4y ago
        I think it is one thing to do it when leaving a country, and another to relocate within the country to a more favorable state.
• jmull 4y ago
  I have a lot of sympathy for the author, but California isn't really doing anything wrong here. > 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.
• outside1234 4y ago
  [flagged]
  • ccleve 4y ago
    You're absolutely right. I am personally to blame for Illinois' tax rate, gun violence, and financial condition, and I really shouldn't talk. I'll go quietly now...
    • deleted 4y ago
      [deleted]
• NikolaNovak 4y ago
  I fully agree with everybody that this is a rant for an unexpected issue (that should have been expected), rather than an objective review. 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.
• Animats 4y ago
  Such whining. He had a business in California, but was a remote boss.
• eltondegeneres 4y ago
  What are the chances OP has a cultural/political axe to grind with California, and mistakenly attributes the difficulty of hiring across states to some sort of "general jackassery of California state government"? 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'"
• PaywallBuster 4y ago
  tl;dr: stick to contractors, don't form employment relationships 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
• gsibble 4y ago
  One of many reasons I fucking hate California.
• jaz46 4y ago
  My entire company is remote (~60 people) and we have to pay a few hundred dollars per state and filing fees for having any employees in that state. We're in 15 states and the cost and time (paperwork and jankiness of their govt websites) ranges quite a lot. 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.
• dangus 4y ago
  Once OP wrote that sentence about "ridiculous" California taxes, the jig was up. He just wants to complain about California because he's associated with the Republican Party. His site has other partisan culture war content. I think in that context, this article can't be seen as good-faith business advice. 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-burden/20494 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.
• aresant 4y ago
  Dang - LOL at the title change ! Appreciate your constant eye for moderation, that was a juicy one Original title is "Don't hire remote employees living in California"
• varispeed 4y ago
  Systems across the world, through corruption, are being built so that only big players can remain on the market. Running small and medium business is increasingly more expensive and eventually becomes no different than just regular employment in terms of reward. The goal is to ensure that talented people can't go on their own and their only way to make a living is to become an employee of big corporation. Business will be reserved only to those "born correctly" or somehow gotten respect of one of VC funds (essentially gatekeepers who tell who can and who cannot do business).
• TimPC 4y ago
  While I don't have a lot of empathy for the author who stubbornly charged blindly into this situation I think there is very real problem here. Small businesses are more global than ever before and it's fairly normal for a business to want to hire an employee in another state. Making it prohibitively expensive to do so in the sense that the minimum bar is to consult with a lawyer about all the implications and use an accountant to fill out the paperwork pertaining to those implications significantly curtails the options available to the small business.
• JoeAltmaier 4y ago
  Doesn't the Universal Commercial Code forbid tariffs for business between states? How does that relate to 'franchise tax'?
• ccleve 4y ago
  @dang Someone edited my headline in such a way that it ridicules the blog post and does not reflect the topic. Questions: 1. Who gets to edit headlines? 2. Is doing this ok? Original: Don't hire remote employees living in California Current: I employed a California resident, so now I’m subject to its regulations
• yandrypozo 4y ago
  Wow thank you for sharing the story, such a great lesson, it's sad to see how hard is getting to do a small business in US, the country of opportunities :(
• sdo72 4y ago
  When I had my startup with my partner in Seattle, and I was in California, I always had to pay this. Our accountant was aware of these things. Maybe getting an accountant or a financial adviser would help in situations like this.
• hnburnsy 4y ago
  Arizona sued California for extraterritorial tax assessments and enforcement where California was assessing a minimum $800 tax on Arizona businesses who had a passive investment in a company that happened to do business in California. 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.
• csomar 4y ago
  I feel the OP pain because if you are small with less than $1m of funding, you are unable to do anything if you want to stay compliant. And compliance seems to be an un-ending stream where every other organization is trying to impose its rules, taxes, fees and licenses. 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.
• sytelus 4y ago
  Too many people are coming down on OP unnecessorily. He started 1 person business which never took off, had no revenue and ended up having to do massive paper work 3 years later that seems akin to colonoscopy. I would have never imagined that hiring a remote worker in California for a tiny little startup means this level of trouble. OP is absolutely right that CA does not allow for enterprenuership spirit and it is currently surviving on wave that was created by pioneers in much more condusive environment 50 years ago.
  • deleted 4y ago
    [deleted]
  • _qbz8 4y ago
    In my opinion someone from outside of CA complaining about CA laws for out-of-state employers has very little to do with the state’s entrepreneurial spirit or the ease of starting a business as a Californian. And more so when the reason for the complaint could have been avoided with cursory research and minimal effort.
    • sytelus 4y ago
      When you are two person startup with no revenues, you don't have luxury of going through arcane laws of each of 50 states. You are surviving on ramen in your parent's garage and you can't hire lawyers. As OP describes, there was nothing "minimal" in what CA demands including 40+ pages of forms you need to fill out.
      • _qbz8 4y ago
        If you’re a two person start up, you only need to worry about maybe 2 states, not 50. This page was all they needed to read: https://www.ftb.ca.gov/file/business/doing-business-in-california.html https://www.ftb.ca.gov/file/business/doing-business-in-calif.... Doesn’t seem arcane to me. The 40+ pages is described as an annual tax return. I don’t know what to say to someone who wants to have a SaaS business but can’t get 40+ pages filled out annually.
• loourr 4y ago
  Yeah, big mistake. I consider California and New York as hostile nations when hiring.
• toiletfuneral 4y ago
• JJMcJ 4y ago
  One workaround for this is to have the employee "payrolled" through a temporary agency. 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.
• m0llusk 4y ago
  Sketching out a business plan with some estimates and then having that reviewed by an accountant usually costs a few hundred bucks or less and can save all kinds of hassle by disclosing all of this in advance. This is especially true if doing business in another country but nowadays states in the US have wildly different labor and tax laws so it is also worth doing here.
  • notreallyserio 4y ago
    Hiring a lawyer to draft (or really just pull from a file) employment agreements is also going to be dirt cheap. And they'll tell the employer, by the way, they'll have to pay a small annual fee to the state, too. ($800? Are we all really talking about a measly $800!?)
• deleted 4y ago
  [deleted]
• b20000 4y ago
  “nothing terribly difficult”
• anonu 4y ago
  This is why platforms like TriNet or EORs like Let's Deel have skyrocketed. They deal with some of this stuff for you. Well at least an EOR does...
• bob1029 4y ago
  Our tiny remote-only startup is based out of Texas. We've been in business one way or another for about 3 decades now. We still have yet to hire a single employee who resides in the state of California (or NY). This is actually the first question HR will ask me when I bring in a recommendation that is not in their system.
• volkadav 4y ago
  Amusingly, I once had to file a small() Illinois state income tax return because I earned income from a consultancy based there. At the time I lived in Texas and the work was done on a server in the UK for a European client. I suppose perhaps some of my ssh packets went through Illinois? 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
• mabbo 4y ago
  I'm a Canadian citizen, living and working in Canada. I haven't been to the United States in over 3 years. I haven't worked in the US since 2018. I am currently paying an accountant to file my California tax return (along with my US federal tax return).
• 0xbadcafebee 4y ago
  Wouldn't that be avoided by hiring independent contractors?
• jleyank 4y ago
  Thought 1099 workers have to pay both the employer and employee portion of social security?
• tannhauser23 4y ago
  People in this thread who are like, "Duh, you should have known that you have to hire a lawyer and HR person and an accountant to comply with all the regulations of California when you a hire a single person from there." Take a step back and think about what you're saying. It really should not be that difficult to hire one person.
• hnburnsy 4y ago
  I am a 1099 remote employee billed via my LLC for a business not in California and I am afraid of working\vacationing for an extended period in CA and getting caught up with the FTB rules and regulations.
• nrlucas 4y ago
  """ So now they’ve lied to me about my income and demanded information that is none of their business. """ Ahh, the Muskian, "I couldn't possibly be wrong so they are coercing and lying, and I am the victim."