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.