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State Taxes for Offshore Employees

In contacting several state revenue departments, I was informed that it was not necessary to withhold state taxes for employees working offshore, ie.Gulf of Mexico. These employees never physically work in any particular state. Does anyone see a problem with not withholding state taxes?


  • Patty's here. ;)

    Here's the hierarchy.

    If work in state waters, the work state rules apply (which more than likely means you would need to withhold in that state).

    If working in federal waters, taxes need not be withheld for the work state. Then you would look to the resident state. If you are required to withhold for the resident state (because you have nexus-a business presence there), then you would withhold from the residents of that state. If you do not have nexus in the resident state, then no state taxes (for any state) need be withheld.

    The hook is trying to make sure you are informed when the location of the work moves from state waters to federal waters. I managed the payroll operation for an international oil drilling company and it took me a year to get the operations people to understand that they had to notify me when a rig 1) started a move and 2) arrived in its new location.
  • My husband is a long-time resident of Texas. He is a mariner that worked for a company who's headquartered in Louisiana. For 2006, they incorrectly filed him as a LA resident, and LA wants $6000 state income tax and fees. The state said if he lived in any state that had state income tax, they would refund it, but since Texas gets its revenue from other places like property tax, the state of LA wants their due unless the company submits a corrected W-2. The company is choosing to ignore the situation and not receive phone calls from my husband or the state of LA--instead of correcting their mistake. By the way, they did get his residence correct for the portion of 2007 he worked for them but now he is at another company. Do we have to pay these taxes? Does that set a precedent that mariners will have to pay state taxes for wherever the boats go are the companies are located? The bill is likely to go to collections soon. What should we do?
  • The company takes divers and diving equipment out to offshore rigs. The boat he piloted worked in multiple states and international waters. As I understand it, because it is interstate commerce, he is not liable for LA state taxes as a mariner because he resides in TX. The question is how to hold the company responsible for fixing the issue and get them to do so. They are flat out ignoring the situation when also as I understand it, one letter on company letterhead could resolve it.
  • All I can tell you is that, unless he actually worked in Louisiana or Louisiana waters, he is not subject to LA state tax to start with; therefore, the fact that he lives in Texas is irrelevant.
    Every employer who has resident or nonresident employees performing services (except employees exempt from income tax withholding) within Louisiana is required to withhold Louisiana income tax based on the employee's withholding exemption certificate. Wages of Louisiana residents performing services in other states are subject to withholding of Louisiana income tax if the wages are not subject to withholding of net income tax by the state in which the services are performed. ... lding.aspx

    You will notice that there is no mention of requiring withholding from non-Louisiana residents who do NOT perform services in Louisiana.
  • Mariners are supposed to be protected from having to pay state tax for every port they land (Jones Act, I think). The boat did work in LA waters but also other states and international. I'm wondering if there are any laws that force employers to report their employees' residency properly and correct mistakes they make. The problem is they reported him as a Louisiana resident for 2006 (this has been going on a while). They got it right for 2007. It is supposed to be relatively quick fix, they didn't pull out the state tax ahead of time so they is no refund involved, just the big fat bill we're getting from LA. Personal opinion: the company is just too lazy and stubborn to address it.
  • In this particular situations, it's not necessarily because he is a "mariner". It's because he does not perform services in Louisiana or Louisiana waters. As such, doesn't make any difference where he lives, at least as far as Louisiana is concerned.

    A law that requires an employer to "properly" record/report wages and taxes? Well, the IRS has regulations, but they don't have a bearing on this situation. It appears the employer knows what is correct, as they did it properly in 2007. Have you tried a letter instead of just phone calls? Copy some higher-up who may actually come down to payroll and say "why aren't you handling this employee's issue?".
  • I know this is an old topic, but I came across it yesterday... My husband has worked offshore for 8 years. He has been in "Ultra Deepwater" which are federal waters in the Gulf of Mexico, so he's not working in any state.

    We have been assessed state taxes in our state of residency on all income he's earned, but he is physically only in the state for anywhere from 35 to 49 weeks per year so not even half of the time... and doesn't earn ANY income while he's in the state.

    Does he owe state income taxes? How does this work? We currently owe nearly $13k to Georgia (where we lived before) and around $5k to North Carolina (where we live now) and I want to know if we actually SHOULD owe this to them.

    Thanks in advance!

  • rrupertrrupert ✭✭✭

    I now live in NC (coming from TX which is a non-income-tax state) and honestly learned this the hard way.

    NC taxes any income you earn while a resident. If you can prove partial residence for him during the weeks he is gone (apartment, address, etc), you MIGHT be able to claim a % of his earnings as non-NC-income-taxable, but I highly suggest an NC local CPA to help you out with that. You don't really wan to get it incorrect for long (don't ask me how I know). And you need to read up on NC residency laws : -- but honeslty the $s to pay a CPA will be worth it and cheaper than penalties/interest and headaches!

  • Most states have a two tier system for residency - first is domicile - second tier is physical presence. Domicile is your fixed home - the place you intend to return - where you have your family, own property, vote, register your cars, have your driver's license and buy a resident fishing license. Or rather, those are all indicators of domicile. Domicile is the place you consider "home". If you spend a certain amount of time in a state, usually more than 6 months (and 35 to 49 weeks is more than 6 months) or 183 days etc. the state assumes you are a resident unless you can prove domicile somewhere else. The state of residency, if it has an income tax, is going to include all of your income no matter where earned in taxable income - that is, it does not matter where the income is earned, if you are a resident of NC, all taxable income will be included in your NC tax return - but - NC allows a tax credit for taxes paid to another state for wages or self-employment income earned while working in another state. David mentioned NY - NY and several other states have "convenience of employer" rules which allow NY to tax wages paid by a NY employer paid to non-residents for certain work performed outside of NY - but that is not what we are talking about here.

    Since you "live" in NC and your state of residency (per you) is NC, NC is going to tax the wages regardless of where they are earned - and there is no tax credit because no other state can tax the wages because the earnings are not earned within any other state.

    The earlier posts were about states in which the divers or mariners or merchant seamen were not residents trying to tax their earnings.

    Take a look at this site -
    Qualifying merchant seamen or mariners pay pay taxes only to their state of residence - people working on oil rigs not located within any state pay taxes in their state of residence.

  • The federal laws relate to interstate commerce - the particular one here is in 46 U.S. Code Part G - Merchant Seamen Protection and Relief, Chapter 111, § 11108 - Taxes
    Wages due or accruing to a master or seaman on a vessel in the foreign, coastwise, intercoastal, interstate, or noncontiguous trade or an individual employed on a fishing vessel or any fish processing vessel may not be withheld under the tax laws of a State or a political subdivision of a State. However, this section does not prohibit withholding wages of a seaman on a vessel in the coastwise trade between ports in the same State if the withholding is under a voluntary agreement between the seaman and the employer of the seaman.
    (b) Liability.—
    (1)Limitation on jurisdiction to tax.—
    An individual to whom this subsection applies is not subject to the income tax laws of a State or political subdivision of a State, other than the State and political subdivision in which the individual resides, with respect to compensation for the performance of duties described in paragraph (2).
    (2)Application.—This subsection applies to an individual—
    (A) engaged on a vessel to perform assigned duties in more than one State as a pilot licensed under section 7101 of this title or licensed or authorized under the laws of a State; or
    (B) who performs regularly assigned duties while engaged as a master, officer, or crewman on a vessel operating on navigable waters in 2 or more States.

  • Note - this rule does not apply to "scientific personnel" which could include divers - The issue in the Louisiana case earlier probably related to the workers "home port" because the employer was located in LA - It is not really clear from the post what the employer actually did. When hired, the employer has to report the new hire - probably reported to LA because that is where the employer is located. Employer has to pay SUTA - again, probably LA because that is where the employer is located - and, likely, that is the place where the employee gets on the boat or helicopter to travel to the rigs. The employer probably reported the total wages to LA - because--- (just because). -- well, some work was performed in LA and no work was performed in any other state and employers don't always know what they are doing. The employee , as a non-resident, is to file an LA tax return and report how much was earned in LA and how much was earned in places other than LA, and should be able to document work locations. Should only be liable for LA tax when physically present in LA or LA waters. An LA resident would be taxed on all income earned everywhere, but would be allowed a tax credit for taxes paid to another state for work performed in that other state. Under the SUTA hierarchy for reporting, the employer would probably report and pay to LA as the place where the employee performed some services and was headquartered as there does not seem to be a state where the employee performs most of the work. New hire reporting is usually to the employer's state.

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