The California Office of Tax Appeals held that pursuant to market-based sourcing rules, a nonresident individual did not derive California sourced income and was not required to file a California return or pay personal income tax. The taxpayer resided in Texas and worked as an independent contractor for Christopher Konrad Consulting, LLC (Konrad), a company with its principal place of business in California. Pursuant to an agreement with Konrad, the taxpayer agreed to design the user experience of products and services for Konrad’s customer, BMC. The taxpayer performed his work solely in Texas and received a 1099-MISC from Konrad. The FTB argued that based on its market-based sales factor sourcing provisions, Konrad received the benefit of the taxpayer’s services in California, and thus, the taxpayer was subject to tax in California. The OTA found that while the billing address of the taxpayer’s direct customer, Konrad, was in California, the location where Konrad’s customer, BMC, received the benefit of taxpayer’s services was in Vancouver, Canada. Thus, the taxpayer did not derive California sourced income and was not required to file a nonresident return or pay California personal income tax.

In the Matter of the Appeal of Christopher J. Wood, OTA Case No. 18042717, (July 8, 2019)