Office of Tax Appeals

Texas Resident Owes California Tax


In an opinion that might be important reading for those considering moving out of California, the Office of Tax Appeals ruled in the Appeal of S. Milam that a Texas resident owed more than $10,000 in California income tax despite never setting foot in the Golden State during the period in question.

The taxpayer, whose Texas residency was not in dispute, asserted that income of $122,050 from a consulting deal with an Oakland-based school was earned by her wholly owned S corporation and that she, as an individual, is not subject to California taxation. The taxpayer stated that the S corporation is incorporated in Texas and did not have any employees in California. The taxpayer also stated that the payer, Aspire Public Schools, may have improperly filed a Form 1099-MISC under her name. She asserted that the S corporation provided the services, and none of the consulting work was performed in California.

The OTA rejected the taxpayer’s arguments, ruling that she failed to provide credible evidence that the 1099 was filed in error, and did not produce contemporaneous documentation to prove the income was not California-source income that was earned by her as a sole proprietor carrying on a unitary business within and outside California. The lack of credible evidence led the OTA to determine that based upon the Oakland address of the school, the income is properly sourced entirely to California.