Traditionally, if you had a physical location or employees in a state your company was considered to have a presence in that state. That made your company subject to taxation and other things in that state as a foreign corporation.

I said traditionally, because as states start to struggle under shrinking revenues they are looking for ways to extract more from taxpayers in new and innovative ways.

Recently, California imposed state income taxes on a corporation formed in another state. This corporation does not have any employees in California, nor do they have an office. Under any reasonable measure, they do not have a “presence” in California.

Except, the CPA they use is in California.

The CPA is not an employee, but California considers them “part of the business”. And since they are located in California, they consider the income of any out of state client to be fair game for taxation.

This time it was a corporation, but just how long do you think they will wait to extend that to individuals?

What’s more, what about CPA firms with multi-state presences? Will a corporation formed in Maryland who uses a CPA with offices in MD and CA be subject to this? Even if the people they deal with are only in MD?

What about the use of a law firm with multi-state presence?

Obviously, I don’t think this will hold if appealed but to push this through the appeals process this corporation will be faced with huge legal expenses. It may be less costly to just pay the back taxes and penalties and then find a non-California CPA.

But, the bigger issue is if this holds, what happens if you use any professional service with a presence in California even if you don’t have one and never deal with anyone in California?