U.S. State Non-resident Withholding Tax

U.S. State Nonresident Withholding Tax is a mandatory prepayment of tax of individuals or entities that are not resident in the state. A common example of this is the taxation of oil and natural gas royalty interest revenue. In order to ensure that the state receives a portion of the revenue from oil and gas leases within the state, any payments made to an address outside of the state require that a tax be withheld and paid directly to the state.

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States that have enacted such laws include, but are not limited to:

  • Georgia
  • Oklahoma
  • New Mexico
  • Utah
  • California
  • Oregon
  • Montana
  • North Carolina
  • Wisconsin

A majority of states with income taxes impose similar requirements on partnerships (including LLCs) and S corporations with nonresident partners or shareholders. All states with income taxes impose a similar withholding obligation on wages paid to nonresidents by businesses operating within the state.[1]

The taxes withheld must be treated as prepaid taxes, with final taxes imposed at the same rate and under the same computations for residents and nonresidents.

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References
  1. CCH State Tax Handbook 2009, pages 513-528.


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