Tax on Nonresident Entertainment Entities Nonresident entertainers such as musicians, actors, dancers, athletes and public speakers may be subject to a two percent tax on the gross compensation they receive for entertainment performed in Minnesota. The tax is imposed on the entertainment entity. The person who has legal control of the payment of the compensation is responsible for withholding and depositing the tax. This tax does not apply to residents of North Dakota or Michigan if the individual provided a properly completed Form MWR, reciprocity exemption/affidavit of residency. More information is available at Nonresident Entertainer Tax. Minnesota Residents Employed Outside Minnesota In Other States. An employer of a Minnesota resident who does not work in Minnesota but works in another state and who withholds federal income tax from the wages of that employee may also be required to withhold Minnesota income tax. The employer may be required to withhold taxes in the state in which the work is being performed and Minnesota if the company in the other state has Minnesota nexus. The term nexus is used in tax law to describe a situation in which a business has a presence in a state and is subject to the state’s jurisdiction to tax. In general, a business has nexus if it derives income from sources within the state, owns or leases property in the state, employs personnel in the state in activities that exceed “mere solicitation”, or has capital or property in the state. Reciprocity agreements apply for the states of North Dakota and Michigan. An employer who is required to withhold both Minnesota income tax and income tax for another state should first determine the amount of income tax to be withheld for each state. If the amount of Minnesota income tax is greater than the amount to be withheld from the state in which the employee is working, the employer should send the difference to the Minnesota Department of Revenue. If the amount to be withheld for the other state is greater than the amount to be withheld for Minnesota, do not withhold Minnesota income tax. Outside the United States. A Minnesota resident who is transferred to a location outside the United States remains a Minnesota resident unless: (1) the employee is a “qualified individual” for the foreign earned income exclusion of Section 911(d)(1) of the Internal Revenue Code, and (2) the employee does not have an interest in any homesteaded property in Minnesota. If the employee does not meet these criteria, the employer must continue to withhold Minnesota income tax from the employee’s wages. If you are required to withhold Minnesota State tax, follow the same rules as tax withheld from employees working in Minnesota. (See the section titled “Withholding Tax Deposit and Filing Requirements” below.) If the employee changes his or her domicile and requests that you stop withholding Minnesota income tax, send the Department of Revenue a copy of the employee’s W-4 and a letter explaining in detail why the employee thinks his or her domicile has changed.
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