We're a public utility in Washington state; we have no other locations. If we were to hire an employee to work in his own state and provide services (i.e., IT, engineer, modeling), would that establish a business presence and require reporting there?


The answers to your questions really depend on the state where the employee lives and works. If you have an employee working in another state, it is a payroll issue rather than accounts payable, e.g., W-2 rather than 1099.

You would probably need to obtain a certificate of residency from the employee; you probably have a new-hire reporting responsibility to that state under PRWORA, and most likely having the employee working in that state means you have nexus, requiring registration in the state and tax withholding, completion of the state’s version of a W-4, and W-2 reporting, if that state has an income tax. You also likely have to pay that state’s unemployment taxes for the employee (though they are exempt from Washington’s unemployment taxes).

It varies—each state has its own tax law (and as indicated above, may or may not have an income tax), and its own definition of nexus. So you have to look at the state in question to see what the specific requirements are, and what constitutes nexus with regard to employee income tax withholding.

If the engineer or other service provider is a contractor rather than an employee, you likely would have a state 1099 requirement as well as PRWORA reporting requirements, but again, it depends on the state.

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