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New York Court Says Telecommuters Must Pay NY Tax
hal9000(jr) writes "The Boston Globe is running this
story on an out-of-state programmer working for a New York company who had to pay state taxes. '"New York has the right to tax 100% of a nonresident employee's income derived from New York sources," according to
the 4-3 decision by Court of Appeals. The court relied on a fairness rule called the "convenience of the employer" under law that says a worker's income is taxable if he chooses to live outside the state, as opposed to if he or
she was transferred there.' The dissenting opinion: 'Judge Robert Smith argued that the basis of the majority's decision that all income is taxable is "that the commissioner says it is ... The majority cites no authority at all, and offers no persuasive reason, in support of this new interpretation."'"
He will get taxed the NY Income Tax AND where he is currently located? That would suck.
By the same logic, it's for my (and all my coworkers') convenience that the Delaware based media company I work for's main office is in NYC and therefore I should ask NYS for a refund for the past 4 years. This is a dangerous precedent. -Mike
Give me the right to vote, and I'll pay your damn taxes. Till then, up yours. I've got tea, you've got a harbor.
So does that mean that he doesn't get to keep any of his money? ;)
Seems like a very badly ambiguous way of putting it.
Qu'on me donne six lignes écrites de la main du plus honnête homme, j'y trouverai de quoi le faire pendre.
I also think this is going to get appealed to the Federal courts. I live in Texas and work for a company that has an office here, but is headquartered in Massachussettes. I can't imagine paying MA income taxes, but it sounds like this court ruling says that I should (assuming the MA courts rule the same way).
And the men who hold high places must be the ones who start
To mold a new reality... closer to the heart
.. lets just have everyone pay tax in every state, just in case.
air and light and time and space
So what if, hypothetically, I live in NY and telecommute to Florida? That should mean that 100% of my income is [i]non[/i]taxible by the state of NY, right?
Or is the rule just "if we want your money, we can take it"?
Irritable, left-wing and possibly humorous bumper stickers and t-shirts
The government rules they can tax yet more of our money.
The majority cites no authority at all, and offers no persuasive reason, in support of this new interpretation.
is judicial activism really that surprising anymore?
Evolution is a state-sponsored, state-protected religion.
Interesting issue though. It may be fair for NY to tax in some telecommuting cases. But I don't see why CA should be able to tax me on my income because I telecommute from Massachusetts. I have never worked in CA.
25% seems to low a fraction to claim the right to tax. NY is not providing any services to the employee and that is the basis on which taxation should be decided. If they want to recover the costs of providing services to the company they should tax the company.
Looking for an Information Security student project suggestion?
Try http://dotcrimeManifesto.com/
Typically you pay a portion of taxes for the time you spent in each state. If you spend 50% of your time in each of two states, they usually have you pay 50% of your taxes in each. But that's if you are PHYSICALLY there.
This sounds as if you could end up paying full income tax in the state your company is in, plus full taxes in your own state - because your local state will consider you a full-time resident (since you do live there full time).
Not only that, but . . . how is New York offering him any representation for the taxes he pays there? He isn't a resident. He doesn't use their services. He doesn't commute. He doesn't have anything to do with anything there - other than it is where his employer is based.
For that matter, shouldn't companies overseas who contract with American companies to provide, say - tech support - have to pay American federal income taxes? I don't see how that would be any different from this scenerio whatsoever...
I'd sure hate to be stuck paying 56% in state income taxes, before even coming to my federal and county income taxes!
Topic says it all, and it's not rhetorical. I'm really curious about this.
File under 'M' for 'Manic ranting'
As long as I am only taxed in one state. Last year I was taxed in 2 states because my residence was listed in one and I worked in the other. But now that I want to file a refund to get that money back in one or the other, neither will want to give me anything back.
My wife telecommutes from OH to CA. We lived in CO for half the year, and she pays state tax in all three. Yeah, her company isn't too happy about it either. States are like sharks these days with your paycheck...but that is for another topic!
Do these have to pay the same taxes aswell?
why not make it easy and have the same tax rates wether you are in NYC or Alabama, look at all the companies/traitors incorporated in Delaware to avoid paying any tax yet they reap all the benefits of the communities they operate in to the tune of billions (and they have the cheek to call themselves American)
a unified tax would even things out
this from the state that raised cigarette taxes then went after people getting them out of state. if the music industry needs to look at its business model, governments need to look at their taxation model - both a looking for all the cash they can get.
always mosh clockwise
So, if you're a New York company that hires programmers, consider relocating (either in toto or a subsidiary) to Texas, where your dollar goes further, and you get to keep more of it.
We have BBQ, TexMex, and sane gun laws (i.e., the law-abiding can own one). What we lack: 3 months of snow, subways, and george Steinbrenner.
Up to you.
Lawrence Person (lawrencepersonh@gmailh.com (remove all "h"s to mail)
http://www.lawrenceperson.com/
No state tax in AK, FL, NV, TX, SD, WY.
NH, TN tax dividends and interest only.
RI is a % of Fed liability.
All others are a % on earnings (NY 4% - 7.7%):
http://www.taxadmin.org/fta/rate/ind_inc.html
I moved out there from the Bay area 10 years ago.
I was getting 150K yr, but found 68% of my income went to taxes!
The City tax was higher then my federal!
My take home after everything was $3500 a month. I couldn't make ends meet and all in all lost over $30K in the move there and move back + the operating at a loss the whole time I was there.
With this new tax rull people who commute from New Jersey would end up paying taxes to two states!
I am so glad to be in California...
I am always doing that which I can not do, in order that I may learn how to do it. - Pablo Picasso
Since this decision only applies to the NY jurstiction, who exactly is going to enforce the law?
The NY police don't have much juristiction in other states...
94% of Repubs and 21% of Dems voted to renew the Patriot Act
I think the dissenting judge's opinion in the matter is interesting:
... The majority cites no authority at all, and offers no persuasive reason, in support of this new interpretation."
In a strong dissent, Judge Robert Smith argued that the basis of the majority's decision that all income is taxable is "that the commissioner says it is
I live in California and just took a contract position with a company in New York. This ruling does not say anything about contractors vs. employees, but knowing New York's tax system, I would guess they want it to apply to me, too. I of course do not intend on paying NYS a single cent, since as far as I can tell they have no authority over me whatsoever, but IANAL.
Any tax lawyers care to comment on this?
"New York has the right to tax 100 percent of a nonresident employee's income derived from New York sources,"
Each employer distributes their own W2. This ruling states that 100% of the income earned from a New York based employer is subject to tax. A person who telecommuntes to New York 50% of their time and San Francisco the other 50% of their time can only be taxed by New York on the income generated from the New York Employer.
Michalangelo Progr
He doesn't use NY roads, his kids don't use NY schools, he deosn't get to vote for NY legislators, senators or anything, he doesn't use NY public transport. Why should he pay NY tax?
PS: I am a NY resident myself.
It doesn't matter that the state is providing services to the business - the business should be taxed by the state, not the businesses employees
A business pays taxes on it's income. An employee pays taxes on the employee's income. The business gets services from the taxes it pays where it is located. The employee gets services via the taxes the employee pays where the employee is located.
E.G., they are taxing the -employee's- income, not the business income, and since the -employee- receives no services, and it is the employee's income, why should the employee have to pay the taxes?
In your 'business all in one state, employees all in another', the state where the business is would get taxes from the business incomes, the state where the employees live would get the taxes on the employee's income.
if you watch TV shows produced in that state.
-pyrrho
When did taxes become a natural law? I thought that taxes were derived from the people of the area where the taxes were used for the purpose of SERVING those paying the tax. It gets kind messy when talking about the Federal Government but it's pretty easy with regards to the States. Especially when one does not reside in the state.
This is just plain wrong. IMO.
LoB
"Anyone who stands out in the middle of a road looks like roadkill to me." --Linus
I think it'd be a pretty good idea if you went to H&R Block this year. Probably bring along that tax return you nuked last year too.
As someone who lives in the state of New York, but telecommutes to a company based in California via servers in Bangalor, I look forward to no longer paying NYS taxes, since I'm there out of convenience...
#include "standard_disclaimer.h"
Why was this even tried in a state court? It's a case of interstate commerce...wouldn't that fall under federal jurisdiction? The fact that the state court didn't dismiss the case outright, to me, shows their bias and/or incompetence. Anybody have any insight into why a state court would hear this case?
In other words, this seems common practice and I really don't see that this hinders telecommuting unless the state of residence also attempts to tax those same wages.
Here's an interesting bill called the Telecommuter Tax Fairness Act. From it:
Being taxed on his entire salary seems ridiculous to me.
Do they have the ability to garner his wages if they are payed by a company in New York through a New York bank? Absolutely. However, in the long run this practice is extremely counterproductive, as it actively encourages their tax base to move elsewhere. Government meltdown occurs when everbody supporting your socialist state goes elsewhere while everybody benefiting from it remains. NYC has been on the brink of that meltdown for years now...
I've abandoned my search for truth; now I'm just looking for some useful delusions.
I've lived in the Delaware/Maryland area all of my life and have had jobs in the opposite state a few times over the years. Because there's no agreement between the states, you basically pay the higher of the two. You file out of state first, paying non-resident rates and you can deduct most or all of that from your home state as a credit. Telecommuting could considered a bit different, but as long you work as an employee, I'm sure they'll want to treat it the same. If the difference between the tax rates is overwhelming maybe become an independent contractor and scare up a few other minor clients (friends and family?) to make it legit.
I'd want them to start to have to pay for school, roads, parks, police, etc here in Arizona. That's what your lower-level (as in less than federal) taxes fund. In the case of state taxes it's all state highways, and roads on state lands, the state universities, DPS, and so on. In other words: things I and my community use.
New York helps pay for none of that, regardless of if I work for a company based there or not. Thus, I don't see any possible reason why they need the money. Arizona needs it because living here I use those services. I don't live in NY, they don't need it.
So ya, if they give me the right to vote in state elections, and start sending money back to my state to pay for things, I'll call this fair. Until then, I'm saying it's an issue for federal court.
no problem, I"ll drop off the check next time I'm in the office.
It's only REALLY bad in August. You can build up resistance to July and September, and the other months are fine. Unless you live in Brownsville.
Of course, if you're the Colorado type that starts sweating like a pig when it hits 80F, you might want to reconsider.
It's also a good motivation to lose weight, since all that extra insulation is exactly what you don't want. Unfortunately (by all appearances), a lot of people down here disagree.
As far as shitty schools. I thought that was a nationwide problem, and last I checked we still taught evolution at least. But to hear some of my teacher acquaintances tell it, yes our schools have gotten steadily worse.
This is pretty par for the course in New York state.
This year, I had the fun experience of doing my taxes as a part-time New York resident, and half of my income was foreign-earned and tax-exempt for that time. In order to not pay New York state income tax on the part that was foreign-earned and federally-exempt because I was physically not in the country, I had to demonstrate that I had only been a part-time tax resident of New York.
The thing about tax residency is that it's separate from voting residency, and one of the criteria for being a "New York tax resident" is "income is derived from a New York source." I forget the exact wording on the tax forms, but basically, if I had lived in Pennsylvania full-time but my work was at a New York company, I'd have to pay New York tax on it.
I also got screwed once when I moved away to Pennsylvania for college and didn't realize all of this crap about tax residency, and the fact that New York will continue to try to collect taxes on all your income until you are cold in your grave if you've ever been a resident. I'd worked part of the year in New York, moved to PA, and worked there in college, and ended up having to pay New York income taxes on my Pennsylvania income. Why? Because I didn't know to file my taxes as a "part of the year" resident. In the following years I remembered to file my forms as a "Pennsylvania tax resident" despite still having my pernament residency in New York.
This worked because 1) I was not physically present in New York *AND* 2) my income wasn't derived from New York sources.
The thing is, this doens't surprise me at all because the working of "derived from NY sources" is certainly vague enough to include "telecommuting to a New York company." I don't think it includes, as one other poster was raving about, "if you work in another state at the office of a company that ALSO has an office in New York you will get hit with New York taxes."
In short my state goverment is a bunch of thieving bastards. (can i also be bitter that they take this income tax and then spend it all on new york city? bastards. *shakes fist at gaping pot holes in road*)
In the 15 years I have been in the "Wonderful World of Work", I have seen a few things.
First, a guy that I know who works in the same DoD company as I do spends quite a bit of time in Maryland. He is a Colorado Resident. He has to do two different state tax returns. One for MD and the other for CO. He mentioned it is a pain to deal with.
Second, in the same company, a few of our people spend quite a bit of time working in California - job site at an Air Force base. They have to do a CO and a CA tax return. According to company rules, if you spend a cumulative number of days that is greater than 30, you have to pay tax to and do a return for the other state.
Third, over ten years ago, I worked in a company that was based in Indiana and when I was an IN resident at the time. We had several people who worked in NY for several months. A new plant was being built and they were installing the computer equipment such as serial and ethernet lines and hooking connections to the factory equipment. If I remember right, they never had to pay NY tax even though the cumulative time spent there was 3 or 4 months. If this happened today, this would be a different story epsecially if Corporate Legal had something to say about it and how cautious companies are to toe the line to cover their proverbial rear end compared to even 10 years ago.
"Taxes are not designed as a direct pay vs. return system"
Hence the problem.
Why yes, I AM a rocket scientist!
> We don't need you prostate subjects, you just screw the whole thing up
> for everyone with your worshipping of the government [...]
The goverment seems to fail to ensure equal access to education but, luckily, slashdot can rectify that.
The subject of today's lesson is the difference between prostate and prostrate.
You very clearly have no idea what you're talking about. +5 insightful means that apparently the mods are newcomers to the term activist judge as well.
An activist judge is one that, rather than ruling based on local, state, or federal laws, or on the constitution, bases his or her ruling on something else. Usually, this amounts to "because I want it to be so" or "we think it makes us look good." Gay marriage is just one of these cases. So is the taxation case that started this topic. It is not based on local, state, or federal laws, and it is not based on the state/federal constitution.
In the MA case, the judges issued a ruling REQUIRING that the state legislature write a law legalizing gay marriage. This is a very clear violation of separation of powers. The court does not have the right to write laws, any more so than the governor has a right to decide trials. Furthermore, and most importantly, no branch of government has the right to exert direct control over the activities of another. The court had no basis in the MA constitution, which it cites, for its decision. They plucked a passage from the article, and have intentionally misrepresented what was written in order to justify their agenda-based decision. (The constitution was not intented to extend marriages to gay couples - just look at who wrote it.) This is similar to a semi-recent case in which the supreme court cited laws and constitutions of other nations to justify a ruling. 'Nice try.'
the judiciary branch is increasingly the only branch of government that an average person can actually use to get anything accomplished.
No, the average person does not necessarily want the rulings of an activist judge. Gay marriage was on the ballot in 11 states in 2004. It lost in ALL of them. Very clearly the "average" person does not want it in their state. While the judiciary -- working mainly through JURIES, not judges -- is a check upon the misbehavoir of the various branches of government (including, hopefully, itself), the government still exists to serve and implement the will of the majority.
The NY case is one in which the state's tax collector egregiously overstepped its rights to taxation. The NY tc should not have jurisdiction over the monies earned via telecommuting. What's next? Charging income tax for people who route their VPN packets through NY, on their way from NH to FL? The dissenting judge is correct and I hope the case is overturned.
Taxation Without Representation
It's really that simple. I am not sure why the courts cannot understand it. Any third grader in a history lesson can understand that.
Other than having a job in Anytown, USA:
I would think that any of the founding fathers would not stand any of this ridiculousness. It was a foundation of a revolution.
Of course, I may be a little facetious, but taxation is just out of control.
Whew! I feel a little better.
Coderz 4 Life
So, do you get to vote in both states?
No taxation without representation and all that jazz...
all the best,
drew
FreeMusicPush If you want to see more Free Music made, listen to Free
We can only hope politicians don't read /. :)
May the source be with you!
Knowing how New York tries to get tax money wherever it can, I wouldn't be surprised to see them attempt to extend this to all IBM employees just because the W2's have a New York address.
Well, maybe they don't pay taxes. As a demographic, many convited felons are probably not high-earners. The gov'ts own stats say almost 1/2 of all "taxpayers" don't pay anything, and 80% of all income tax is paid by 20% of us. (I am sure even minimum wage drones get tagged for social security and medicare, just not any significant income tax).
So, the flip side is this; why not "no representation without taxation"? Say $100 per vote, vote as much as you wish. Would you still vote?
When the country was founded you had to be a white male property owner. Obviously that wouldn't fly today, and I personally have no bias against any race, sex, or even sexual orientation, but logically, what is so wrong that stakeholders and producers (taxpayers) should have more say than those who don't? It sure seems to be getting to the point where have-nots are simply voting for the haves to give.
This issue is a bit more complicated than you think.
I live in New Hampshire and worked for a Massachusetts company for a few years. Massachusetts siphoned off its full income tax during those years with absolutely no recourse to me because New Hampshire has no income tax. Now that doesn't for a moment mean that I don't pay tax in New Hampshire. We make up for that tax free status by having outrageous real estate taxes instead.
But do you suppose Massachusetts cares how much I pay in real estate taxes? Boohoo.
The real killer last tax year (2004) was that at least half of my income came from Florida. And because my deductions on the Massachusetts form are factored by the percentage of income from Massachusetts, they wanted even more of my money than usual. The more I earn outside of Massachusetts, the more I pay to Massachusetts in taxes. Go figure!
There's been a lot of condemnation of this, but it sounds OK to me. A lot of people who live in NJ (for example) commute to NYC to work. It's understood that they pay taxes.
They do not get to vote in NY, but they pay taxes because that's where they make the money. Everyone is OK with that.
If someone lived in NJ and only came into the office 1 day a weekm they still have to pay same NY taxes, because the fact that their employer kindly let them work from home doesn't change the fact that they work in NY. They don't pay 1/5th of NY's tax.
Instead of coming in once a week, this guy doesn't come in at all. But it's not so different than the guy who only comes in once a week. The employer lets him work from home, but he's an employer of a NY office. He works in NY.
Some mentioned the reasons why this must be the case. NYC makes ample investment to attract employers, and it's meant to make that money back in income taxes. The company this guy works for benefits from these advantages. If he's really offended at having to pay the tax in a state where he works (even if he doesn't show up) then he should find a job in-state so that he'll only have to pay one tax.
The fact that he doesn't use NY's resources is a non-issue. The fact that you don't use some service doesn't entitle you to a refund, and he's no different.
Ecce Europa - Web Design for Business
I've lived in NYC for 10 years. I can't see how it is possible that if you are making 150K per year (federal tax bracket averages out to about 25% or so) is going to be less than the 2-4% you pay in NYC (depending on the year, in general city taxes have been lowered year after year during the 1990's but slipped up again after the budget crisis that occurred after 9/11)
Maybe if you had a bunch of crazy deductions or something I suppose it is possible.
As far as 68% of your income going to income taxes, I can't see that either.
In 2003 I made 100K:
paid ~19K in federal Tax
paid ~6K in NY State Tax
Paid ~3K in NYC Taxes
I don't have a single deduction, excluding the personal deduction, so my tax percentages are a bit higher then most people in the US at my income level (most people in my income bracket are paying morgages, so they get to deduct that)
So I paid about 28% of my income to taxes.
How the hell di you get up to 68%! I'm not saying it's impossible, I'm just wondering how you pay 40% more of your income in taxes.
Peace, or Not?
New York provides the job, New York provides the professional opportunity, and New York should be able to tax that income, even if the employee for his own convenience was working outside of New York state,
This is an amazingly important quote, because it shows the psychology of these people.... New York doesn't provide the job, the company does!. New York provides the schools, roads, and other things which tele-commuters do not use. This is such an amazingly incorrect and self-serving decision... I hope it goes to appeal.
You may not get back as much as the full time resident but you are still using NY's infrastructure.
False. The state of New York does not own the phone lines, cables, or IT infrastructure that makes this possible. In fact, the state of New York already taxes the entities who do own these things.
You also get an benefit from telecommuting (less commuting time to office, lower property taxes, etc..).
Irrelevant and misleading. The state of New York gets a greater benefit of you not causing wear and tear on the infrastructure actually owned by the state (roads, bridges, schools, libraries, etc) while you generate revenue for a corporation based in and taxed by the state of New York, revenue which adds to the state tax coffers.
Finally, if its so wrong, why not just work in your home state (answer: you'll get a salary you'd probably never be able to get in your home state).
The point is that the person in question is working in his own state. For example, I have a friend who works for a company based in the state of New York with employees many different states. Many of those states believe (correctly, I believe) that they have the right to be compensated by means of their tax systems for the services provided to the employees of this company. It is very unlikely that many of the other states in question would be impressed by the argument that those employees are not actually working in the states in which they actually do work.
Ultimately, the questions raised by the avaricious exploitation by the state of New York of out-of-state employees of a company based in New York are a matter of interstate commerce, and therefore subject to the jurisdiction of the federal government.
You cannot be taxed twice on the same income.
The problem is that common double tax situations have become entrenched in federal and state budgets. They either have to leave the double taxes as they are, on stock dividends for example, or else cut spending. Which one do you think appeals more to politicians?
All services, goods, and fees which are mandated by any government entity are counted as taxes
In a sense they already are. The government is charging money, or taxing if you will, to cover the cost of basic public services as you use them. These services generally include civil court, motor vehicle licensing, and in some states toll highways. They are just counted separately from income taxes, meaning that you pay them with after income tax money, and imposed as the circumstances dictate.
total taxes paid, including all income taxes, fees, sales taxes, etc., cannot exceed a certain percentage of your income. Anything in excess of, say 40% (though I think 20% would be more reasonable) of gross income gets refunded.
It would not be possible to implement this without maintaining massive centralized databases containing all transactions engaged in by all citizens during the course of a typical year. This would be a massive increase in government power and a serious threat to any semblance of privacy that we still have left. The IRS is bad enough and you want to increase the scope of their auditors?
a flat tax rate instead of the ridiculous graduated tax rates. (Where I can actually make more money and end up with less because my tax percentage jumps.)
This is a misconception. Even if you are just barely in the next highest tax bracket you will never lose 100% of the money that is in that highest bracket so it is impossible to end up with less than you would have had if you were still entirely in the lower bracket. At least this is how it is in the United States, however at one time in the United Kingdom this WAS true and the highest bracket was actually paying 105% of income in that bracket, but even the most hardened socialist cannot claim that was fair so they fixed it back to 90%. With regard to graduated rates a more elegant smooth curve, possibly involving the natural logarithm, would have been more elegant than the crude bracket system, but then again most citizens, including politicians, never took calculus and so if they cannot understand the system then it must be unfair...sheesh
taxes are subject to jurisdictional delineations; if you are not using the services provided by a jurisdiction, you cannot be taxed by that jurisdiction (including the Federal government if you live outside the U.S.
Taxes are paid were the income is earned irrespective of whether you live there or not and this is how it should be. That is why New York is not wrong to tax this man for income that is earned inside the state of New York. However, it would be wrong for that income to be taxed by his home state too. Generally though this isn't a problem because income taxes go into the general fund rather than into more specific funds meant to maintain roads, buildings, and other infrastructure. Those funds are usually covered by other taxes such as gas taxes, property taxes, and the like.
The inheritance tax should be abolished altogether. It is simply unconscionable.
Inheritance is income just like any other source of income. It should be taxed as income. Taxes above and beyond income, just because it is inheritance, for example are unfair and should not be levied.
Portland Oregon is a 1 million person metro area mostly in a state with no sales tax. About one quarter of the metro area is in Washington State with a 5% (I believe) sales tax and much lower state income tax.
Most people try to take advantage of this situation by residing in Washington and working in Washington State (if possible). Then they shop for durables in Oregon. Oregon's state income tax is quite high, much more so than WA. If you live in WA and work in OR, OR state makes you pay their income tax.
In a dual tax situation like this, the various governments watch everyone's financial situation closely to maximize their revenue. Everyone pays different amounts of tax. People who live in the no-sales-tax state are not required to pay sales tax on purchases of big-ticket items like cars that are bought in the sales tax state. One state has $15/yr car registration and the other has registration fees about ten times higher. There are also arrangements for college students not having to pay out-of-state tution to attend schools in the metro area that are technically out-of-state.
There aren't many metro areas that have state borders in the center of them. Kansas City, New York City, St. Louis, DC, Philly, Omaha, Cincinati. There are only two major metro areas with international borders cutting through them: El Paso and Detroit. Miami is one of the most important cities of Latin America even though it isn't actually in Latin America. It's a special case; everybody's neutral ground.
This tax situation is just going to get worse as the ultra-rich continue to pay a smaller percentage of their income to taxes through off-shore tax shelters and bribing state legislators to put specific loopholes for near individual situations into general laws. This is where someone introduces a law that no one would vote against (like making it illegal to expose your penis within 50 feet of an elementary school), and then puts a clause in the bill that would apply specifically to an individual large campaign contributor. The result of all this is that the tax burden gets shifted more each year from the rich to the middle-class.
The smarter elements of the middle class will use the internet to increasingly take advantage of offshore tax shelters on a much smaller scale. A company needs a network analyst. In the past they would hire someone to do this as an employee. In the future someone agrees to set up and maintain a network for $1500. The person sells an old Dell PC to the company for $1500. A bank in Luxembourg transfers $1500 to the network administrator's PayPal account. The network administrator uses her PayPal debit card to buy groceries and get cash-back after a day's work at the network site. The old Dell stays in the closet. No one pays tax.
This kind of thing is pretty transparent to a good government tax investigator. But when it becomes so common of a way of employment compensation that there are 100,000 cases a year for each government tax investigator, then there won't be much that the tax man can do to control it. There will always be some poor schmuck that gets slammed hard to set an example, just like the 12-year-old who gets slammed with a $150,000 fine for downloading a teen-idol pop song, but it will just be bad luck and its publicity will only increase the resolve of middle-class people to come up with new ways to not pay taxes.
Eventually all these huge budget-busting but mostly symbolic government projects like the Space Station, the BigDig, and Endless_Permanent_Middle-East_War will just be abandoned in mid-process due to lack of funds from decreasing tax revenues and the unwillingness of wealthy outsiders to lend money for some politician's wet-dream fantasy.
This is a misconception. Even if you are just barely in the next highest tax bracket you will never lose 100% of the money that is in that highest bracket so it is impossible to end up with less than you would have had if you were still entirely in the lower bracket.
Given the tax table at www.irs.gov/pub/irs-pdf/i1040tt.pdf, if I am single, and my taxable income is $29,699, my tax from the table would be $4,156.
Say that my income, and thus my taxable income, rises $2, to $29,701. My tax from the table becomes $4,169.
Note that I would then be paying $13 more in taxes for a $2 taxable income change.
Sure, it's $11 less spending power, it isn't a lot, but given that it took me 30 seconds to find one example, and given the complexity of tax law, are you so sure there aren't others that are more significant?
Code or be coded.
Someone needs to do SOMETHING about these judges making laws out of thin air.
Clearly this ruling is contrary to the interstate commerce clause of the Constitution. By this court's "logic" Everyone employed by any company has to pay taxes to EVERY municipality and state that the company has a presence in.
People love to talk of the greed of corporations for money, and that talk is somewhat justified. Too little and seldom, however, is the talk of the greed of GOVERNMENTS who think they have a God given right to a "cut" of all money that flows through the economy.
When is this court going to demand income taxes from all those offshore Indian programmers that I'm sure more than one NYC basef firm employs?
In the long run, if this were to stand, and I think it won't, because federal judges, being bigger pompous asses than even state judges, won't stand for federal authority to be usurped, this tax scheme would have a DEVASTATING effect on NYC and it's economy.
Corporatism != Free Market
The important piece of this to the states is not where you were when you worked, but where the company did business. If the company's business operations are in their state and you contributed to the business operations in that state, then that state is going to examine what was done and may lay a claim to your wages. However, if you can document that the company paying you has business operations in the state you are in and that you worked for those business operations, then you pay income tax to the state you are in.
First example: if you work for Company Y and Company Y sends you to Texas to install a computer system, Texas does not have the ability to claim any of your wages because the majority of the business operations for Company Y are in the state Company Y does business. Texas makes up for it by charging sales tax.
Second example: (personal) While living and working in Colorado, I made a point of working in the satellite office of a company that was located in Indiana, even though the project I was working on was run out of (and paid out of) the Indiana office. Because it was a real office owned by the same parent organization, because I made a point of having a desk and a phone in that office even though I was a W2 contractor, and because that office had similar business operations, Colorado claimed my wages, and Indiana could not.
One of the issues facing contractors - those of you who are truly self-employed and paid 1099 as I used to be - is that you need to make a concerted effort to have a physical office space and to do the majority of your work out of that office. You need to document the hours spent in that office, etc. Then (as most of you know), you avoid the taxation issue where two states contend for your wages.
One of the problems facing contractors is that many are being forced to work for companies by going to "approved vendors" as W2 employees. This is the same problem facing those who telecommute.
If you're paid W2, live in state A, but the business operations are in state B - well, this NY ruling sets a dangerous precendent (and NY is not alone in going after these situations) Even though you physically are located in another state, the company that is paying you as a W2 does not have or pay for a physical office space in your state and does not have any business operations in your state. As a result, the state can rule that you owe them income taxes as the deciding factor is not where you were but where the business paying you operated. The precedent is "we, the state (or city) have created an atmosphere for this business to exist and operate within our state's boundaries, therefore you owe us income tax on any wages earned while doing work for the business operations located within our limits." The issue being that the state you live in wants its cut too.
Note: areas that border - and someone bought up Cincinnati, which borders Ohio, Indiana and Kentucky - often have agreements which allow someone who lives in one state but works in another state to only pay taxes in the state in which they live. These agreements date to the times when people could only travel so far in one day in order to work.
Basically, US state tax law has not yet taken into account the ability people have to telecommute. Contact your legislator and get them working on it. Not that they care much, but maybe you can find someone to champion the issue.