Tuesday, August 25, 2020

Work in the Cloud and Pay Taxes . . . Where?

When I lived in Connecticut and commuted to work in New York, I paid NY income tax. Now the traditional idea of imposing state and sometimes local income tax based on work location is under stress. With many of us working in the cloud, the location of our abandoned office desks hardly seems relevant.

Yet if I were working from home in Connecticut, New York would still expect me to pay NY tax. Likewise, Massachusetts wants workers living in New Hampshire to pay Massachusetts income tax even though they are now working at home. New Hampshire is fighting back, inspired by the unofficial state motto: “Live income-tax free or die!”

High earners who have fled cities to their vacation homes or new mansions in other states are advised to check their state tax status. Could more than one state want a chunk of their salary and bonus?

If office cubicles end up being abandoned permanently, states will face troublesome tax challenges. When you work in the cloud, your “place of employment” may be fungible. 

For example, one of the largest employers in this part of New Hampshire is an insurance company with headquarters in Massachusetts. Imagine a New Hampshire employee who commuted to headquarters but now works from home on marketing projects around the country. Massachusetts wants to tax her income. She doesn’t want them to. So she says, “Boss, please change my virtual desk assignment to New Hampshire.” 

As “place of employment” becomes cloudier, states may have to settle for taxation based on place of residence. 


Jim Gust said...

Taxing nonresidents never made sense to me.

But the states are addicted to taxation, they will find a way. They will impose the tax where the payroll checks are cut, they will force noncitizen to sue for refunds, they will take the money first and answer questions later.

The one thing no state has ever or will ever do is cut spending. Inconceivable!

The unfortunate response is going to be an exodus of businesses from the high tax states. It's already underway in CT. Democrats love to raise taxes, but they don't actually like paying them. New Hampshire should brace itself for a wave of business relocations.

Jim Gust said...

BTW, great image.