Remote Rules—Texas Telerad Wins in California Tax Court

A landmark California Court of Appeal decision is shielding out-of-state remote professionals from Golden State taxation. In Garcia-Rojas v. California Franchise Tax Board, the court ruled that a Texas teleradiologist is not subject to California income tax, despite serving California patients.

So, California attempted to use a complex corporate tax theory to claim income from a contractor who never physically entered the state.

• The Provider: Dr. Xavier Garcia-Rojas, a Texas-based radiologist, performed contract reads for San Diego-based StatRad from 2018 to 2020.
• The Dispute: The Franchise Tax Board (FTB) claimed Dr. Garcia-Rojas owed taxes because he used StatRad’s software, was licensed in California, and served Cali patients.
• The Numbers: The doctor originally paid roughly $48,000 in taxes, penalties, and interest under protest before suing for a refund.

Legal Pivot: The court rejected FTB’s attempt to apply the unitary business doctrine (usually reserved for multi-state corporations) to a single-person sole proprietorship.

• The Rule: A nonresident providing remote professional services does not automatically become part of a unitary business just because their client is in California.
• The Result: Because the actual labor (i.e., image interpretation) happened at a desk in Texas, the income is not California-sourced.

As Bloomberg noted, Garcia-Rojas v. CAFTB sets a binding precedent for thousands of remotely contracted lawyers and consultants, as well as the surfeit of tech sector labor, working for California firms. Indeed, it confirms that location of labor—not the location of the client—is the deciding factor for individual income sourcing.