Two recent California decisions highlight the difficulty of sourcing remote independent contractor income. California regulations provide that if a nonresident individual’s business, trade, or profession is carried on entirely outside California, then no portion of the net income is derived from sources within the state. But if a nonresident’s business, trade, or profession is a sole proprietorship that carries on a “unitary” business, trade, or profession within and without California, the amount of net income derived from sources within California shall be determined using the standard corporate income tax apportionment formula.

The California OTA has applied this apportionment rule broadly in recent cases to impose California personal income tax on completely remote independent contractors (e.g., in Bindley and in Suurs), but the California Court of Appeal just reversed a similar trial court decision on the basis that a “unitary” business necessarily requires two or more businesses, so this remote contractor’s income could not be sourced to California. This reasoning could have sweeping implications for California and other states.

Cameron Browne (Tax Analysts), California OTA Rules Against Dutch Consultant in Income Tax Dispute

In Matter of Suurs, the OTA affirmed a modified income tax assessment against a Dutch consultant after it determined that the income he received from working on California construction projects while in the Netherlands was taxable California-source income. The opinion, dated February 17, was released May 4.

Perry Cooper (Bloomberg Law): Teleradiologist Avoids California Tax on Work Performed in Texas

A Texas-based radiologist isn’t subject to California income tax on what he earned reading images remotely for hospitals there, a California appeals court ruled [May 1], just two days after oral arguments.

Dr. Xavier Garcia-Rojas asked the California Court of Appeal, First Appellate District, to overturn a trial court order that he operated a “sole proprietorship which carries on a unitary business” that was required to apportion its income among the states where it provides services.

Garcia-Rojas doesn’t operate a unitary business, which has long been understood as two or more business entities commonly owned and integrated in a way that transfers value among the entities, the court said. “Here, Garcia-Rojas is operating—at most—a sole proprietorship engaging in one business activity,” Justice Victor A. Rodríguez wrote for the court.

Related Scholarship:

• Kirk J. Stark (UCLA), Evolving Discontinuities in The State Taxation of Income from Remote Work, Nat’l Tax J. (2026)
• Andrew Appleby (Tennessee): Formulary Apportionment: A New Framework for Personal Income Taxation, 52 Pepp. L. Rev. 61 (2025)