Apk,

The tax portion of this question should be directed to your accountant and/or payroll company. You did not specify is this an independent consultant or an employee. In general, if a person is an independent contractor then it is the person’s responsibility to withhold and pay the correct taxes. Generally speaking, a person that works in CA and lives in CA, would pay taxes in CA. If a person is an employee of your company, then you may need to withhold in accordance to CA law.

In addition, there are legal non-tax issues to consider:

First, if you pay the person as an independent contractor, you have to make sure that you comply with CA and Federal law in connection with the correct classification of this person as an inexpedient contractors. Many employers don’t realize that the decision to classify a person as a independent contractor is determined by law and not by them. The states and the federal government are fairly aggressive in enforcing the correct classification of independent contractors and employees.

Second, if the person is actually an employee of your company, your company may need to register in CA as a foreign company, because de-facto your company may have presence there.

Please note that according to IRS Circular 230 to ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this writing was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein.